Show more

Lesson 16, Topic 4

In Progress

← Previous Next→

🎥+✏️🎯Discontinued Operations CPA Exam Question Solved by Farhat🟢

Lesson Progress

0% Complete

discontinued-cPA-example Download

Responses

You must be logged in to post a comment.

Martavious Moates 26 January 2024

If the selling occurred in year 4, why did we have to retroactively apply the operating loss for year 3?

Log in to Reply
1. Maroun, CPA 26 January 2024
  
  Hi Martavious,
  
  When a component of an entity is discontinued, U.S. GAAP requires that its results be separated from continuing operations for all periods presented in the financial statements. This is mandated by the Financial Accounting Standards Board (FASB) under ASC 205-20, “Presentation of Financial Statements—Discontinued Operations.”
  
  Under these guidelines, even if the operation was discontinued in year 4, its results for year 3 must be presented as if the operation was discontinued at the beginning of year 3. This helps in providing a clear, consistent, and comparable view of the financial performance of the ongoing operations of the entity.
  
  Hope this makes sense!
  
  Log in to Reply
  1. Kathleen Murphy 6 November 2024
    
    Is this because the information is being reported in a comparative income statement for year 4 and year 3?
    
    Log in to Reply
    1. Maroun, CPA 9 November 2024
      
      Hi Kathleen,
      
      Yes, exactly! When presenting financial statements in a comparative format, U.S. GAAP requires that discontinued operations be shown consistently across all periods presented. This is to ensure that users of the financial statements have a comparable view of ongoing operations without the discontinued component, even if the actual sale or discontinuation happened in year 4. By retrospectively reclassifying the results for year 3, the comparative income statement provides a clear, side-by-side view of continuing operations for both years, enhancing transparency and comparability.
      
      Hope this helps!
      
      Log in to Reply
  2. Kashif Qureshi 5 February 2026
    
    Hello,
    Is income from continuing operations of year 3 also restated, as it includes operating results of discontinued operation in it.
    
    Log in to Reply
    1. Maroun, CPA 9 February 2026
      
      Hello Kashif,
      
      Yes. In a comparative income statement, the prior-year amounts are reclassified (recast) to present the discontinued component separately in each year shown.
      
      Thus, for Year 3:
      – The segment’s operating loss is removed from “income from continuing operations” and reported in discontinued operations (net of tax).
      
      – As a result, Year 3 income from continuing operations increases (because it no longer includes the discontinued segment).
      
      Important: this is a presentation reclassification. It does not change Year 3 total net income; it only changes where that segment’s results are reported.
      
      Hope this helps!
      
      Log in to Reply

Farhat.AI

Hi! I'm Farhat.AI. I've analyzed this lecture.

Ask about the lecture or another finance and accounting topic.