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Describe the accounting for the spin-off component

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Question - The Gap reports the following in its Form 8-K dated Feb. 28, 2019? Gap Inc. today announced plans to create two independent publicly traded companies: Old Navy, a category-leader in family apparel, and a yet-to-be-named company ("NewCo"), which will consist of the iconic Gap brand, Athleta, Banana Republic, Intermix, and Hill City. Gap Inc. expects to effect the separation through a spin-off that is intended to generally be tax-free to Gap Inc's shareholders for U.S. federal income tax purposes. Upon separation, Gap Inc. shareholders are expected to receive a pro-rata stock distribution and as a result own shares in both NewCo and Old Navy in equal proportion. The transaction is currently targeted to be completed in 2020.

Required -

a. Describe the accounting for the spin-off component of this transaction.

b. What effects did this transaction have on The Gap balance sheet and income statement?

Reference no: EM133051437

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