Reference no: EM133154578
Question - Lala Inc. is a publicly traded company. After consultation with several experts, Lala Inc. decided to discontinue one of its major lines of business on October 31, 2021.
The following information is provided about the heavy machinery which was used in the line of business to be discontinued:
The original cost of the machinery: $1,700,000
Depreciation method: double-declining balance method
The estimated useful life of the Machinery since the date of purchase: 15 years
Date of purchase of the Machinery: May 1, 2019
Fair value on October 31, 2021: $1,250,000
Costs to sell the Machinery: $20,000
The results of the company's operation in 2021 show $970,000 revenue, which includes $310,000 revenue generated by the discontinued line of business. During 2021, the company had $510,000 total expenses of which $138,000 were incurred by the discontinued line of business (before recording depreciation and impairment loss).
Required -
A) Write the journal entries necessary to reclassify the machinery as held-for-sale in 2021.
B) Complete an Income Statement for the year ended December 31, 2021. Tax rate is 18%.
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