Discontinued operations
When a disposal counts as a discontinued operation, how unusual or infrequent items differ from one, and how each is presented before or after tax.
A disposal leaves continuing operations only when it meets all three discontinued-operation tests. We apply those tests, present a qualifying result net of tax, and show the effects on comparative statements and the balance sheet.
- Date
- Tue 9/2280 minutes
- Reading
- Chapter 7: Discontinued operations (read by next class) Optional Kieso equivalent: Chapter 3 and Chapter 17
- Engagement points
- Scored5 points for answering at least 75%
Slides and downloads
View the slides online, or download the PDF for offline reading or printing.
Watch this meeting
These materials change during the semester. Report an error or an unclear passage.
Lecture playlist Subscribe on YouTube
The slides of this meeting's deck, each held for as long as the narration over it runs. Read by a speech synthesizer; every line was transcribed back and checked against its script before it was kept.
What to do before class
- Review the continuing-operations and discontinued-operations sections of the income statement from Session 6.
What we will do in class
Recall Lecture 6
Review the income-statement sections and their tax presentation.
The three discontinued-operation tests
Start with classification and end with the proper statement presentation.
Gross of tax or net of tax
Compare an item in continuing operations with a discontinued result.
Apply all three tests
Decide whether Granite Harbor has a component, a disposal, and a strategic shift with a major effect.
When one test fails
Classify a disposal that does not represent a strategic shift.
Keep unusual losses in continuing operations
Reject the obsolete extraordinary-item category.
Present the discontinued result
Calculate the net-of-tax line and show the effects on both statements.
Classify four new items
Choose continuing or discontinued operations and the correct tax presentation.
Complete an individual check
State the classification and presentation without notes.
Do not use extraordinary item
United States generally accepted accounting principles no longer use an extraordinary-item category. An unusual or infrequent loss remains in continuing operations unless a separate presentation requirement applies.
Assigned reading and deadlines
Solutions to the in-class problems post to D2L after the meeting.
- Read Chapter 7: Discontinued operations after this meeting and before the next class.
- Complete the Unit 2 review assignment by Sunday, September 27 at 11:59 PM.
Practice and review
You do not have to complete or submit these items. They do not affect your grade.
- Redo the failing-disposal case and state which criterion controls the conclusion.
- Rebuild the discontinued-operation line from its pre-tax amount and related tax effect.
- For a textbook explanation, read Kieso Chapter 4.
Lessons, examples, and references
Complete the assigned reading first. Open a link below when you need a definition, another explanation, or more practice.
Lessons
- Does the disposal leave continuing operations?
Evaluate component, held for sale or disposal, strategic shift, major effect, continuing involvement, period, tax, cash flow, comparative, and disclosure evidence.
Concepts used
Mistakes to avoid
- Mistaken idea: Any disposal is a discontinued operation
Correction: A disposal is a discontinued operation only when all three conditions are met: the activity is a distinguishable component, it has been disposed of or meets the applicable held-for-sale criteria, and its disposal represents a strategic shift with a major effect on the entity's operations and financial results.
Questions from this lecture (2)
These prompts are optional, not assigned, submitted, or graded. If you use them, choose an answer before opening the explanation on the linked practice page.