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Unformatted text preview: inuing operations. Details disclosed in footnotes. Chapter 4-14 Discontinued Operations-Another Example Discontinued Operations-Another Example A franchiser in the quick­service restaurant business also operates company­owned restaurants. An individual company­owned restaurant is the lowest level at which operations and cash flows can be clearly distinguished. All company­owned restaurants in one region are sold to another company. Reported under discontinued operations. All company­owned restaurants in one region are sold to an existing franchisee. Chapter 4-15 This is not a sale of a component because the company will continue to have significant involvement in the operation of the restaurants. Reported under income from continuing operations. Details of sale disclosed in footnotes to financial statements. Reporting Discontinued Operations Reporting Discontinued Operations Exercise: McCarthy Corporation had after tax income from continuing operations of $55,000,000 in 2010. During 2010, it disposed of its restaurant division at a pretax loss of $270,000. Prior to disposal, the division operated at a pretax loss of $450,000 in 2010. Assume a tax rate of 30%. Prepare a partial income statement for McCarthy. Income from continuing operations Discontinued operations: Loss from operations, net of $135,000 tax Loss on disposal, net of $81,000 tax Total loss on discontinued operations Net income Chapter 4-16 $55,000,000 $54,496,000 315,000 189,000 504,000 Reporting Discontinued Operations Reporting Discontinued Operations Discontinued Operations are reported after “Income from continuing operations.” Previously labeled as “Net Income”. I ncome St at ement ( in t h o us a nd s ) Sales Co s t o f g o o d s s o ld $ 2 8 5 ,0 0 0 14 9 ,0 0 0 Ot her revenue (expense): I nt e r e s t r e ve nue I nt e r e s t e x pe ns e T o t a l o t h e...
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