Question 1

On October 1, Year 1, Gamma Corp. committed to a plan to sell a component of the entity that represents a strategic shift. The component was sold on January 15, Year 2. For the year ended December 31, Year 1, the component had an operating loss of $100,000. The carrying value of the component was $2,000,000 and its fair value less costs to sell was $1,800,000. The tax rate is 25%. What amount should be reported as Discontinued Operations in the Year 1 Income Statement?

Accepted Answer

1. Identify Operating Loss ($100k). 2. Identify Impairment Loss (Carrying Value $2M - FV $1.8M = $200k). 3. Sum losses ($300k). 4. Apply tax rate (net of tax).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Forgetting the impairment loss; forgetting to apply tax; applying tax only to one part.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 4

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