Question

On April 30, 20X5, Carty Corp. approved a plan to dispose of a segment of its business. The disposal loss is $480,000, including severance pay of $55,000 and employee relocation costs of $25,000, both of which are directly associated with the decision to dispose of the segment. The firm is a calendar-fiscal year firm, and the segment's operating loss for the entire year (20X5) through the date of disposal was $120,000. Before income taxes, what amount should be reported in Carty's income statement for the year ended December 31, 20X5, as the total income effect (loss) from discontinued operations?

Answer 1

$600,000

Step-by-step explanation:

The total income effect (loss) is calculated by adding the disposal loss plus the operating loss = $480,000 + $120,000 = $600,000

In the income statement, disposal losses are disclosed separately than operating losses, but they together represent the total loss from the discontinued operation.