Reference no: EM133137012
Question - Sahar Inc. is a publicly traded company. After consultation with several experts, Sahar 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:
Original cost of the machinery $1,500,000
Depreciation method: double declining balance method
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 $1,000,000
Costs to sell the Machinery $10,000
The results of the company's operation in 2021 shows $950,000 revenue, which includes $210,000 revenue generated by the discontinued line of business. During 2021, the company had $480,000 total expenses of which $120,000 were incurred by the discontinued line of business (before recording depreciation and impairment loss).
Required -
1) Prepare all the journal entries necessary to reclassify the machinery as held-for-sale in 2021.
2) Prepare an Income Statement for the year ended December 31, 2021. Tax rate is 25%.
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