On December 2, 20X1, Flint Corp.'s board of directors voted to discontinue operations of its frozen food division and to sell the division's assets…

According to U.S. GAAP (ASC 205-20), the results of discontinued operations are reported separately in the income statement. This amount includes two components for the reporting period: (1) the income or loss from the operations of the component and (2) the gain or loss recognized on the disposal of the component's assets. For the year 20X2, the calculation includes all relevant activities that occurred within that fiscal year. This consists of the January 20X2 operating loss of $30,000 and the February 20X2 gain on sale of $90,000. The net amount to be recognized in 20X2 is a gain of $60,000 ($90,000 gain - $30,000 loss). The $20,000 loss from December 20X1 is reported in the 20X1 income statement.

A. $0 is incorrect because it fails to recognize the net effect of the operating loss and the gain on disposal that occurred in 20X2.
B. $40,000 is incorrect because it improperly includes the $20,000 operating loss from 20X1, which must be reported in the 20X1 income statement.
D. $90,000 is incorrect because it represents only the gain on the sale of assets and omits the division's operating loss incurred during 20X2 prior to the sale. ---

1. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 205-20-45-3. This section specifies that the results of operations of a discontinued component shall be reported in the income statement for the period(s) in which they occur. This supports reporting the 20X2 operating loss and disposal gain in the 20X2 income statement, while the 20X1 loss belongs to the 20X1 statement.

2. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (17th ed.). Wiley. In Chapter 4, "Income Statement and Related Information," the textbook explains the reporting for discontinued operations. It clarifies that companies report the income/loss from operations of the discontinued component for the current period, separate from the gain/loss on disposal, with both items presented net of tax in a specific section of the income statement. This confirms that only 20X2 activities are included in the 20X2 calculation.

3. Spiceland, J. D., Nelson, M. W., & Thomas, W. B. (2021). Intermediate Accounting (10th ed.). McGraw-Hill Education. Chapter 4, "The Income Statement and Statement of Comprehensive Income," details the presentation of discontinued operations. It states, "The income or loss from operations of the component from the beginning of the reporting period to the disposal date" is included. This principle directly applies to including the January 20X2 loss in the 20X2 calculation.