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Lesson 16, Topic 3

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🎥🎯+✏️CPA Exam Questions: Discontinued Operations🟢

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Brandon Hutchins 30 January 2024

Time Stamp 16:03

I’m a little bit confused as to why interest expense would be included in the calculation for permanent earnings. I understand that the gain on investment only happens every once in a while so it would be considered “temporary”. However interest seems like it should be temporary to me as well since a company doesn’t have to incur interest expense every period.

However I guess I can see how most larger companies would have some type of interest expense from one period to the next through financing, etc. I’m just wondering if this is the right way to think about it. Since most larger companies would have some sort of financing is this why we consider interest expense apart of permanent earnings?

Thank you for your help

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1. Deleted User 31 January 2024
  
  Hello Brandon,
  
  Permanent earnings in accounting refer to consistent and sustainable income that reflects a company’s core operational performance. Interest expense is often considered part of permanent earnings because, even though it doesn’t occur every period, it represents a recurring cost linked to regular financing needs. Many businesses rely on external financing, and interest expense is an ongoing and essential component of their operations, reflecting the cost of maintaining their capital structure. Including interest expense in discussions about permanent earnings acknowledges its regular and integral role in a company’s financial structure.
  
  Hope this makes sense !
  
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Lesley 4 February 2024

Why the answer to this discontinued Operation answer is not D: 500,000 impairment loss included in continuing operations and a $2,000,000 loss from discontinued operations.

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1. Deleted User 5 February 2024
  
  Hello Lesley,
  
  Because from the moment the component is classified as “held-for-sale”, the company would classify any impairment losses, operating profits/losses, and gain/losses on disposal as discontinued operations in the income statement.
  
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George Issa 31 March 2024

Hi, I am having tech issues. I would like to take the T/F quick and the MCQ but nothing is coming up.

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1. Deleted User 1 April 2024
  
  Hello George,
  
  Hope all is well.
  
  The issue is fixed, you should be able to navigate to the quizzes through the link.
  
  Farhat Lectures Support Team
  
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Sarah Marcenat 23 June 2024

For timestamp 10:35, is the segment income from operations not included in the income from operations? If a company is aware that it plans to sell a segment should they separate that operating income to discontinued section of the income statement?

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1. Maroun, CPA 24 June 2024
  
  Hello Sarah,
  
  When a segment is classified as discontinued according to GAAP, its operating income should NOT be included in the income from operations for continuing operations. Instead, it should be separated and reported in the discontinued operations section of the income statement.
  This provides clarity to stakeholders about the company’s ongoing performance without the influence of the income from the segment that is being sold.
  
  I hope this makes sense!
  
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  1. Marianna 20 October 2025
    
    Hello ,
    since the income from operations shouldn’t be included given that the company took the decision to sell, why would the correct answer be : income from operations for the year and either a gain or loss on the disposal of the component? why not only the gain or loss on disposal of the component
    
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    1. Maroun, CPA 22 October 2025
      
      Hello Marianna,
      
      I did NOT say the income from the component’s operations should be excluded from “income from discontinued operations.” I said it should be excluded from continuing operations.
      
      Continuing operations show the results of the business that will keep going after the disposal—so once a component is classified as discontinued, its revenues and expenses are removed from continuing ops.
      
      Discontinued operations present, in one line (net of tax), both:
      – the component’s results of operations for the period, and
      – the gain or loss on disposal (or write-down to fair value less costs to sell).
      
      Because the question asks for income from discontinued operations in a year the component is sold, the correct amount includes the component’s current-year operating income plus the gain or loss on disposal.
      Showing only the disposal gain or loss would omit part of what GAAP requires for discontinued operations.
      
      I hope this makes sense!
      
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Nisa Masihuddin 14 July 2024

for the last question isn’t sales revenue a temporary earning why are using this number if its asking for permanent?

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1. Maroun, CPA 16 July 2024
  
  Hello Nisa,
  
  Nevermind about the last question. We removed it because it wasn’t clear.
  It was asking about permanent earnings from a financial analysis perspective.
  
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Nisa Masihuddin 14 July 2024

are there any quizzes for discontinued operations nothing is coming up on my end it goes straight into chapter 4

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1. Maroun, CPA 16 July 2024
  
  Hello Nisa,
  
  We will be adding a quiz on discontinued operations in the next couple of days.
  Thank you for bringing this to our attention!
  
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2. Maroun, CPA 22 July 2024
  
  Hello Nisa,
  
  I wanted to let you know that we have added quizzes for discontinued operations in Chapter 3.
  If you have any questions or need further assistance, please feel free to reach out.
  
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