On September 1, 20X1, Revsine Co. approved a plan to dispose of a segment of its business. Revsine expected that the sale would occur on March 31, 20X2, at an estimated pre-tax gain of $375,000. The segment had actual and estimated operating pre-tax profits (losses) as follows: Realized loss from 1/1/20X1 to 8/31/20X1 $ (300,000 ) Realized loss from 9/1/20X1 to 12/31/20X1 (200,000 ) Expected profit from 1/1/20X2 to 3/31/20X2 400,000 The expected profit from 1/1/20X2 to 3/31/20X2 was based on Revsine's expectations as of 12/31/20X1. Assume the marginal tax rate is 21%. Required: In its 20X1 income statement, what should Revsine report as profit or loss from discontinued operations (net of tax effects)?

The amount remaining after-tax impacts are subtracted is referred to as net of tax. In any case, involving taxation, the net of tax can be a factor to consider.

The revsine report depicts losses from discontinued operations of 395,000 dollars in the income statement.

Given Information

From 1/1/20X1 to 8/31/20X1, a loss of $300,000 was realized.

From 9/1/20X1 to 12/31/20X1, a loss of $200,000 was realized.

400,000 EXPECTED PROFIT FROM 1/1/20X2 TO 3/31/20X2

Note

Revsine's expectations are not accrued because the accounting follows the accrued rules, thus do not include them until they are realized.

With a tax rate of 21%, the company has losses of $500,000.

[tex]=500,000[/tex] × [tex]21[/tex]%

[tex]= 105,000[/tex]

This results in a 105,000-dollar tax break.

Computation

[tex]\text{Net of taxes}= 500,000 - 105,000 = 395,000[/tex]

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