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Change-A-Lot Company

Fall 2011

During 2011, the Change-A-Lot Company decided to dispose of their Going-Going-Gone Line (which qualifies as a component of the entity). Since the disposal process was somewhat complex, it extended beyond December 31, 2011 (the end of the firm’s fiscal year), but it was expected to be completed within one year. The following information is available as of December 31, 2011:

Going-Going-Gone / Remainder of
Change-A-Lot
Revenue for 2011 / $800,000 / $2,600,000
Expenses for 2011 / 950,000 / 1,500,000
Carrying value of net assets, Dec. 31, 2011 / 650,000
Fair market value of net assets, Dec. 31, 2011 / 590,000
Retained earnings of Change-A-Lot, Jan. 1, 2011 was $474,000

REQUIRED (Each requirement is independent of the others. Assume an income tax rate of 30%):

A. The Going-Going-Gone Line is disposed of on May 1, 2012, and the following information is available as of that date:

Going-Going-Gone / Remainder of
Change-A-Lot
Revenue for 2012 (until May 1) / $450,000 / $3,000,000
Expenses for 2012 (until May 1) / 330,000 / 1,850,000
Selling price of net assets on May 1, 2012 / 600,000

Present the Income statement for 2011 and the Discontinued Operations section of the 2012 income statement.


B. Assume the same facts as in Part A, but assume the fair market value of the net assets of Going-Going-Gone on December 31, 2011 was $660,000.

Present the Discontinued Operations section of the 2011 and 2012 income statements.

C. Assume the same facts as in Part A, but assume the disposal is not completed until February 1, 2013. Present the “Discontinued operations” section of the 2012 & 2013 income statements with the following information available:

Going-Going-Gone
Revenue for 2012 / $750,000
Expenses for 2012 / 720,000
Fair market value of net assets of Going-Going-Gone on December 31, 2012 / 620,000
Revenue for 2013 (until February 1) / 55,000
Expenses for 2013 (until February 1) / 40,000
Selling price of net assets of Going-Going-Gone on February 1, 2013 / 585,000

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