question archive Problem 2 Appendix I Accounting issues Wooden bicycle segment Restructuring during the fiscal year under audit led to the decision to discontinue the wooden bicycle segment, which is a major line of business, on November 20

Problem 2 Appendix I Accounting issues Wooden bicycle segment Restructuring during the fiscal year under audit led to the decision to discontinue the wooden bicycle segment, which is a major line of business, on November 20

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Problem 2 Appendix I Accounting issues Wooden bicycle segment Restructuring during the fiscal year under audit led to the decision to discontinue the wooden bicycle segment, which is a major line of business, on November 20. Relevant information about this decision is as follows: ? The segment incurred a loss of $283,500 for the year. ? Estimated costs to dispose of the segment are $300,000. A broker has been hired for the transaction and the assets of the segment are currently advertised at prices that reflect WTI's best estimate of fair value. ? At the time the board decided to dispose of the segment, the fair value of its property, plant, and equipment was estimated to be $7 million and the carrying value of PP&E was $7.9 million. When this analysis was performed, management was surprised to find that many fixed asset acquisitions over the past couple of years were not prudent. Some assets had been purchased at excessive prices and others had been utilized far below capacity. ? Carrying value of current assets and all liabilities were equal to fair value. Fair value estimates did not change between November 20 and December 31. ? The income tax rate for WTI is30%. WTI wrote down the property, plant, and equipment to $7,000,000 in the 20X1 financial statements. The $900,000 loss is reported under "other income and expenses" on the income statement.

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