Problem: Discontinued Operations-Contin Limited
Contin Limited ("Contin") has a June 30 fiscal year-end. Contin disposed of its computer processor manufacturing division on January 31, Year 3. The division had a net loss (after taxes)of $45,240,000 in Year 3, to the date of disposal. The division was sold for $570,720,000 in cash plus future licensing fees through June 30, Year 4, which were guaranteed to be $36,000,000.The minimum guaranteed licensing fees were included in the computation of the Year 3 gain onthe sale of the division. Actual licensing fees received during the fiscal year ended Year 4 were$35,500,000. Excerpts from the May 31, Year 4 income statement are as follows:($ millions)Year ended June 30 Year 4 Year 3Earnings (loss) from continuing operations $ 110.2 $ 125.0Discontinued operations:Gain on sale of discontinued operation(net of incomes taxes of $1.4 in Year 4and $40.80 in Year 3) 5.2 218.8 Net income (loss) $ 115.40$ 343.80Required:1.
1. Determine the net book value of the discontinued computer processing manufacturingdivision at the date of disposal.2.
2. Why does Contin report a gain on the sale of the discontinued operation of $4,300,000 inthe year ending June 30, Year 4