ACC 305 Lecture Notes - Lecture 42: Income Statement
Background Diversified Holdings Inc. (DHI), a calendar-yearcompany, operates three separate businesses. In September 2014, DHIdecided to make a strategic shift in its business and sell itscandy segment because its revenues and earnings were declining dueto health-conscious consumers. The Chocolate House (TCH) subsidiaryrepresents the entire candy segment. You have been asked to helpdetermine the appropriate accounting treatment related to thisdecision. In your analysis, you should consider the followingadditional information: âº DHI engaged a broker to help determinethe value of the candy segment and to help locate a buyer. Thebroker indicated that given the age of the property, plant andequipment, the candy segment likely could be sold in less than ayear if the offering price was $200 million. âº This offering pricewould also allow DHI to fully recover the cost of TCHâs inventory.DHI considered this a reasonable value for these operations. DHIobtained Board approval to sell TCH for $200 million in November2014. âº The Board was informed that the estimated cost of sellingTCH was $10 million. âº On December 1, 2014, DHI publicly announcedits intention to dispose of its candy segment. At this time, DHIinformed the broker that TCH was available for immediate sale.Prior to year-end, the broker was actively seeking buyers. âºManagement has concluded that TCH should be accounted for as adiscontinued operation. âº Relevant financial information as ofDecember 31 is provided on the following page for DHI and TCH. âºAll intercompany eliminations are already reflected in DHIâsconsolidated financial information. The effective income tax ratein both 2013 and 2014 is 50%. For purposes of this analysis, do notconsider any required segment disclosures.
Required âº Review the required disclosures for a discontinuedoperation in ASC 205-20-50 and ASC 360-10-45. Identify whichparagraphs are the most relevant in detailing the necessarydisclosures for discontinued operations.
âº Provide and record the journal entries required for TCHâsremeasurement.
âº Draft the required disclosures and revisions to thecomparative consolidated financial statements assuming DHI reportsusing US GAAP