Part A: In each of the following circumstances,determine whether the disposal would qualify as a discontinuedoperation. All companies are calendar year companies andthe transactions are occurring in 2018. Give citations from the ASCto justify your answer.
1. An entity manufactures andsells consumer products that are grouped into five major productlines. Each product line includes several individual products thatcomprise the lowest where operations and cash flows that can beclearly distinguished, operationally and for financial reportingpurposes, from the rest of the entity. Product line 1 ismade up of almost 100 different individual products. Due todeclining sales, 3 products in Product line 1 were discontinuedduring the year.
2. Anentity manufactures and sells consumer products that are groupedinto five major productlines. Each product line includes several brandsthat comprise the lowestwhere operations and cash flows that can beclearly distinguished,operationally and for financial reporting purposes, fromthe restof the entity. Product line 3 which makes up between 20& 25% ofthe entity’stotal revenues has experienced significant market declines whilethe other product lines have beengrowing. As a result, the entity has decidedto saleits operations associated with Product line 3.
3. Anentity operates restaurants in several states. For that entity,each restaurant comprises operations and cashflows that can be clearly distinguished, operationally and forfinancial reporting purposes, fromthe rest of theentity. As a result of an above market offer for two ofits restaurants in the state of Alabama, theentity sold these restaurants.These tworestaurants produced between 1 & 3% of the entity’s totalrevenuesand comprisedabout 1.5% of the entity’s total assets.
Part B. ABC Co. decided on March 3, 2018 to dispose of theirWidget Segment. The sale of the segment was completed on November13, 2018. The disposal of this segment qualifies as adiscontinued operation. Income Statement data for ABCfor calendar years 2016-2018 are as follows:
2018 2017 2016
Sales $3,000,000 $2,700,000 $2,500,000
Cost of goodssold 1,800,000 1,593,000 1,525,000
Operatingexpenses 700,000 680,000 650,000
These amounts include the operating results for the WidgetSegment through its disposal on November 13,2018. Income Statement data for the Widget Segmentseparately for 2016-2018 are as follows:
2018 2017 2016
Sales $450,000 $600,000 $700,000
Cost of goodssold 315,000 408,000 455,000
Operatingexpenses 120,000 150,000 130,000
The book value of the assets and liabilities of Widget onNovember 13, 2018 was 4,800,000. The sales price was6,210,000. ABC has a tax rate of 28% for 2016 & 2017and a rate of 25% for 2018.
Required: Prepare, in good form, complete comparativeIncome Statements for ABC for the years 2016-2018.
