Salamander Inc. is a food processing company that operates divisions in three major lines of food products: cereals, frozen fish, and candy. On 13 September 20X1, the Board of Directors voted to put the candy division up for sale. The candy division’s operating results had been declining for the past several years due to intense competition from large international players such as Nestlé and Cadbury.

The Board hired the consulting firm Atelier LLP to conduct a search for potential buyers. The consulting fee was to be 5% of the value of any sale transaction.

By 31 December 20X1, Atelier had found a highly interested buyer for the candy division, and serious negotiations were underway. The buyer was a food conglomerate based in Brazil; it offered $4.5 million cash.

On 25 February 20X2, after further negotiations, the Salamander’s board accepted an enhanced Brazilian offer to buy the division for $4.7 million. The Salamander shareholders approved the sale on 5 March 20X2. The transfer of ownership took place on 31 March 20X2.

Salamander’s income tax rate is 20%. Other information is as follows (before tax, in thousands of dollars):

	13 September 20X1							31 December 20X1
	Book Value			Fair Value				Fair Value
Candy division’s net assets:
Current assets	$	910			$	820			$	740
Property, plant, and equipment (net)		4,400				3,200				3,400
Current liabilities		(900	)			(900	)			(900	)
	$	4,410			$	3,120			$	3,240
Net earnings (loss) of the candy division:
13 September to 31 December 20X1										450
1 January to 31 March 20X2										(560	)

Required:

1. Prepare whatever journal entries are appropriate at 13 September 20X1, 31 December 20X1, 25 February 20X2, 5 March 20X2, and 31 March 20X2.

2. Assume that the after-tax earnings from continuing operations amounted to $5 million in 20X1. Prepare the lower section of the earnings section of the 20X1 SCI.

Answer rating: 100% (QA)

1 Journal entries Date Particulars Reference Dr Cr 13 September 20X1 Impairment Expense Losses Ac ... View the full answer