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(solution) How to do the three required questions? I have no clues


How to do the three required questions? I have no clues


ACTG 350 ? Case 1

 

Due: Tuesday, October 27 (at the beginning of class). Also, please be prepared to

 

discuss the case and your solution in class on this date. Required: Complete the requirements outlined in the following case developed by the Ernst

 

& Young Foundation. Please submit one case per group. To access ACS 205-20-50 and ASC 360-10-45 please log into the FASB Accounting Standards

 

Codification website.

 

Instructions for accessing the FASB Codification database:

 

1. Go to http://aaahq.org/ascLogin.cfm

 

2. User ID: AAA51526

 

3. Password: f5J5WSC Discontinued operations

 

Diversified Holdings Inc.

 

Background

 

Diversified Holdings Inc. (DHI), a calendar-year company, operates three separate businesses. In

 

September 2014, DHI decided to make a strategic shift in its business and sell its candy segment because

 

its revenues and earnings were declining due to health-conscious consumers. The Chocolate House (TCH)

 

subsidiary represents the entire candy segment. You have been asked to help determine the appropriate

 

accounting treatment related to this decision. In your analysis, you should consider the following additional

 

information:

 

? DHI engaged a broker to help determine the value of the candy segment and to help locate a buyer.

 

The broker indicated that given the age of the property, plant and equipment, the candy segment likely

 

could be sold in less than a year if the offering price was $200 million.

 

? This offering price would also allow DHI to fully recover the cost of TCH?s inventory. DHI considered this

 

a reasonable value for these operations. DHI obtained Board approval to sell TCH for $200 million in

 

November 2014.

 

? The Board was informed that the estimated cost of selling TCH was $10 million.

 

? On December 1, 2014, DHI publicly announced its intention to dispose of its candy segment. At this

 

time, DHI informed the broker that TCH was available for immediate sale. Prior to year-end, the broker

 

was actively seeking buyers.

 

? Management has concluded that TCH should be accounted for as a discontinued operation.

 

? Relevant financial information as of December 31 is provided on the following page for DHI and TCH.

 

? All intercompany eliminations are already reflected in DHI?s consolidated financial information. The

 

effective income tax rate in both 2013 and 2014 is 50%. For purposes of this analysis, do not consider

 

any required segment disclosures.

 

Required

 

? Review the required disclosures for a discontinued operation in ASC 205-20-50 and ASC 360-10-45.

 

Identify which paragraphs are the most relevant in detailing the necessary disclosures for discontinued

 

operations.

 

? Provide and record the journal entries required for TCH?s remeasurement.

 

? Draft the required disclosures and revisions to the comparative consolidated financial statements

 

assuming DHI reports using US GAAP. Discontinued operations ? case studies

 

© 2014 Ernst & Young Foundation (US). All Rights Reserved.

 

SCORE No. MM4159I 1 (All $ amounts in millions)

 

Consolidated DHI

 

Statement of financial position

 

Cash 2014

 

$ 20 TCH 2013

 

$ 30 2014

 

$ 2013 (30) $ 10 Inventory 360 380 80 50 PP&E 450 460 200 210 Liabilities 100 90 20 20 Equity 730 780 230 250 Revenue 1,700 1,750 500 600 Expenses (1,400) (1,350) (540) (580) Income statement Pretax income (loss) 300 Net income (loss) (40) 20 (150) Income tax expense (benefit) 400

 

(200) 20 (10) $ 150 $ 200 $ (20) $ 10 $ 150 $ 200 $ (20) $ 10 Cash flows

 

Operating activities

 

Investing activities (100) (120) ? (10) Financing activities (60) (100) (20) (10) 30 50 10 20 Beginning cash

 

Ending cash $ 20 Discontinued operations ? case studies

 

© 2014 Ernst & Young Foundation (US). All Rights Reserved.

 

SCORE No. MM4159I $ 30 $ (30) $ 10 2

 


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