On July 4, Y2, ABC Inc. sold a component of their business to XYZ Inc. for $740,000. ABC determined the component would be discontinued in Y1 and properly reported the component in the discontinued operations section of the income statement. At 12/31/Y1, ABC estimated the fair value less cost to sell of the component to be $680,000, while the book value was $755,000. The pre-tax income of the component from January 1 – December 31 Y1 was $45,000.
During Y2, ABC had a pre-tax operating loss of $55,000 for the component. ABC is subject to a 40% income tax rate.