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What would martinez report in its income statement

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Question: On September 1, 2021, Martinez Appliances enters into a tentative agreement to sell the assets of its Commercial division. This division qualifies as a component of the entity according to GAAP regarding discontinued operations. The division's contribution to Martinez's operating income for 2021 was a $4 million loss before income tax. Martinez has an average tax rate of 25%.

Required: Consider independently the appropriate accounting by Martinez under the following two scenarios:

Scenario 1: Assume that Martinez sold the division's assets on December 31, 2021, for $25 million. The book value of the division's assets was $18 million at that date. In this scenario, what would Martinez report in its 2021 income statement regarding the Commercial division?

Scenario 2: Assume that Martinez had not yet sold the division's assets by the end of 2021. Further, assume that the fair value less cost to sell of the division's assets at December 31, 2021, was $10 million and was expected to remain the same when the assets are sold in 2022. The book value of the division's assets was $18 million at the end of 2021. In this scenario, what would Martinez report in its 2021 income statement and balance sheet regarding the Commercial division?

Reference no: EM132720340

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