Question

The unaudited income statement and balance sheet of Gourmet Foods Corporation for the years
2012 and 2011 are given below (in $ million):


In 2012, Gourmet Foods sold its meat packing division for $600 million in cash (the decision to sell the unit was made on the same day). On the date of sale, this division had operating assets of $860 million and operating liabilities of $300 million. At the end of 2011, operating assets and liabilities of this division were $821 and $300 million, respectively. The division had no debt. Its operations for 2012 and 2011 were as follows:



The accountant of Gourmet Foods had not made any entries regarding the sale of this division.
The tax accountant opined that 35% of the gain on sale would be taxable.

Required:
a. Gourmet Foods’ auditor decides that the sale of the meat-packing division should be treated as a discontinued operation. Show how the income statement and balance sheet of Gourmet Foods will need to be restated to reflect this change.
b. Assume you were a financial analyst. How would you treat this discontinuedoperation?


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  • CreatedJanuary 22, 2015
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