🎯Discontinued operations & unusual items: 9 MCQs

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SHOAIB MUHAMMAD 12 June 2024

Wouldn’t be sale on investment ” Non Operating Loss”

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1. Maroun, CPA 17 June 2024
  
  Hello Shoaib,
  
  Please reference the question number of the quiz so we can review and address your comment.
  
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Joseph Aiello 16 July 2025

wouldn’t the “Loss on sale of investments” and Loss on impairment of fixed assets” be discontinued operations?

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1. Maroun, CPA 18 July 2025
  
  Hello Joseph,
  
  Loss on Discontinued Operations refers specifically to losses directly related to components or segments of the business that have been discontinued (sold off, abandoned, or held for sale). To qualify as discontinued operations, these items must represent a clearly distinguishable segment, major product line, or geographic area, and the sale must represent a strategic shift.
  
  In contrast:
  • Loss on sale of investments: Generally relates to the sale of investment securities or assets held for investment purposes. Typically, these investments are not part of core business operations, nor are they necessarily linked to discontinued business segments. Unless clearly indicated otherwise, such losses are usually reported within continuing operations, specifically under non-operating items.
  
  • Loss on impairment of fixed assets: Impairments represent write-downs of assets used in ongoing operations that have experienced a decline in fair value. These impairments normally arise from assets still used in current (continuing) operations, not those discontinued. Therefore, such losses are usually considered part of continuing operations, unless explicitly stated that these fixed assets belong to a discontinued segment.
  
  I hope this helps!
  
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  1. Medhat 20 September 2025
    
    Hello, the company wouldn’t test an asset for impairment unless they decided to discontinue it. In my opinion , choice b is correct Could you explain because I am confused here
    
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    1. Maroun, CPA 22 September 2025
      
      Hello Medhat,
      
      An impairment test under ASC 360 can occur without a discontinued operations plan. We test for impairment when indicators exist (e.g., adverse economics, physical damage, cash-flow shortfalls, plans to dispose)—but unless the asset (or disposal group) meets the held-for-sale criteria and the disposal represents a strategic shift of a component per ASC 205-20, the impairment is reported in continuing operations, not in discontinued operations.
      
      Applied to this question: The facts already give a separate “Loss on discontinued operations = 486,000.” That line captures the discontinued piece (net of tax). The other two items are not identified as part of that discontinued component/held-for-sale group, so they stay in continuing operations:
      
      Loss on sale of investments (123,000) → non-operating, continuing ops (absent a note that it belongs to the discontinued component).
      
      Loss on impairment of fixed assets (105,000) → ASC 360 impairment of assets held and used → continuing ops unless explicitly tied to the disposal group classified as held for sale.
      
      Income from continuing operations before tax:
      4,200,000 (Sales)
      – 2,160,000 (COGS)
      – 860,000 (Selling & admin)
      – 123,000 (Loss on sale of investments)
      – 105,000 (Impairment loss)
      = 952,000
      
      Authoritative references (for context):
      ASC 360-10 (Impairment of long-lived assets held and used), ASC 360-10-45 (held-for-sale classification and measurement), and ASC 205-20 (Discontinued operations presentation).
      
      I hope this makes sense!
      
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      1. Medhat 22 September 2025
        
        Thank you so much
      2. Maroun, CPA 23 September 2025
        
        You’re very welcome, Medhat! Feel free to reach out if anything else comes up.
  2. Mitalee chowdhury 7 June 2026
    
    In the below question – the explanation says “Loss on sale of investments” is excluded from the calculation but actually its included in the answer. The correct answer is 1075000 per explanation but the answer that is being reflected as right is “952000”. Please check and solve this confusion.
    Amanda corporation has reported the following for the year ended December 31, year 1:
    AccountAmount ($)Sales revenue4,200,000Cost of goods sold2,160,000Selling and administrative expenses860,000Loss on sale of investments123,000Loss on discontinued operations486,000Loss on impairment of fixed assets105,000
    What would be the income from continuing operations before income taxes for year 1?
    
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    1. Maroun, CPA 11 June 2026
      
      Hello Mitalee,
      
      In the explanation, the loss on sale of investments is included in the correct calculation.
      
      What the explanation actually says is:
      • Choice D = correct because it includes the loss on sale of investments and the loss on impairment of fixed assets
      • Choice B = incorrect because it excludes the loss on sale of investments
      • The only item excluded from income from continuing operations is the loss on discontinued operations
      
      Thus, the correct answer remains $952,000.
      
      It’s probably the formatting issue what made it hard to read.
      As a result of a recent update, there was an issue with the format of some questions and explanations, and we are currently working on fixing that.
      
      Hope this helps!
      
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Aaditya Manoj 29 October 2025

hi didn’t completely understand why the 35,000 was deducted form the Ganin on sale of the asset , like I thought any losses have to be reported net of tax , but in the solutions the tax was calculated after subtracting the logistical losses

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1. Maroun, CPA 30 October 2025
  
  Hello Aaditya,
  
  The $35,000 loss wasn’t deducted after tax; it was deducted before tax because both the gain on disposal and the operating loss belong to the same discontinued component and to the same reporting year (20X7).
  
  Under U.S. GAAP (ASC 205-20), all items related to a discontinued operation—operating results (income or loss) and any gain or loss on disposal—are reported together, net of tax, in a single line called “Income from discontinued operations, net of tax.”
  
  Thus, the proper sequence is:
  Combine all pre-tax amounts related to the discontinued operation:
  650,000 (gain on disposal) − 35,000 (operating loss) = 615,000 pre-tax profit
  
  Then apply income tax (25%) to that combined figure:
  615,000 × 25% = 153,750
  
  Finally, report the net amount:
  615,000 − 153,750 = 461,250
  
  If you instead applied tax to each item separately (gain after tax and loss after tax), you’d get the same net result—but GAAP presentation is based on aggregating pre-tax components first, then showing the total net of one tax effect.
  
  So, in summary:
  – The $35,000 loss is part of the discontinued segment’s pre-tax results.
  – The tax is calculated after combining the gain and the loss.
  – The final line, “Income from discontinued operations, net of tax,” shows $461,250.
  
  I hope that clears it up!
  
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Muhammad Shahid 25 November 2025

When should loss on disposal of discontinued operations be recognized. I am noticing some conflicting responses pertaining to this. See below example of a question and advise:
Wand, Inc., has adopted FASB ASC 205-20 (Presentation of Financial Statements—Discontinued Operations). On October 1, 20X1, in a strategic shift, Wand, Inc., committed itself to a formal plan to sell its Kam division’s assets. On that date, Wand estimated that the loss from the disposal of assets in February 20X2 would be $25,000. Wand also estimated that Kam would incur operating losses of $100,000 for the period of October 1, 20X1, through December 31, 20X1, and $50,000 for the period January 1, 20X2, through February 28, 20X2. These estimates were materially correct. Assuming that the Kam division qualifies as a component, disregarding income taxes, what should Wand report as loss from discontinued operations in its comparative 20X1 and 20X2 income statements?

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1. Maroun, CPA 27 November 2025
  
  Hi Muhammad,
  
  You’re right to feel that something is off here; the question is actually poorly worded.
  
  It only gives you the results for October 1–December 31, 20X1, and January 1–February 28, 20X2, but it doesn’t say anything about the segment’s results from January 1–September 30, 20X1.
  
  In reality, once a component is classified as discontinued, the entire year’s results for that component (January 1–December 31) are reported in the discontinued operations section, not just the last three months after the plan is announced. The question is simplifying by only giving the last quarter of 20X1, which can be misleading.
  
  In proper practice, we’d show the full-year results of Kam as discontinued operations, not only the October–December portion.
  
  The wording about the $25,000 “loss on disposal in February 20X2” is also misleading. Under GAAP, once the division is classified as held for sale (on October 1, 20X1), we measure it at fair value less costs to sell and recognize any impairment loss at the end of the year—not in the future when the sale actually happens. Thus, conceptually, that $25,000 is an impairment loss recognized in 20X1, even though the question phrases it as a future disposal loss in 20X2.
  
  I hope this helps!
  
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Christopher Caballero 25 April 2026

For question 1) Why would the loss on sale of investment be allocated as part of operating income even though the this transaction is not associated with the primary revenue generating activity of the organization? For financial statement users, Isn’t it better to allocate the loss in the other income/(loss) section?

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1. Maroun, CPA 27 April 2026
  
  Hello Christopher,
  
  You are thinking about it correctly. The loss on sale of investments is generally not part of operating income because it is not related to the company’s primary revenue-generating activity. It is usually presented in other income/(loss), below operating income.
  
  The key here is that the question is not asking for operating income. It is asking for income from continuing operations before income taxes. That subtotal includes both:
  1. operating items, and
  2. nonoperating items that are still part of the company’s continuing operations
  
  Therefore, the loss on sale of investments is excluded from operating income, but it is still included in income from continuing operations before tax.
  
  That is why the loss on sale of investments is deducted in arriving at $952,000. If the question had asked for operating income, then your point would be exactly right, and that loss would normally be left out of that subtotal.
  
  Hope this makes sense!
  
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🎯Discontinued operations & unusual items: 9 MCQs

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