Mary Jones Inc. reported $159 million of Income from Operations for its year end
ID: 2512594 • Letter: M
Question
Mary Jones Inc. reported $159 million of Income from Operations for its year ended December 31, 2011 This income included a gain on sale of the Mary Jones family of brand names to AR. Samuels, for total proceeds of $275 million. At the time of disposal, the brand names had a book value of zero because they had been developed internally by Mary Jones. Soon after the disposal, in January 2012, the company changed its name to Evergreen & Florence Companies to reflect the sale of its Mary Jones brand names. For its year ended December 28, 2013, Evergreen & Florence reported Income from Operations of $80.9 million, after deducting the following asset impairment losses: Juicy Couture brand impairment loss TRIFARI brand impairment loss Mexx impairment loss $ 1.6 million 4.0 million 6.5 million Total impairment losses $12.1 million a. Determine the gain on sale that Mary Jones reported in 2011 when it disposed of its brand names. (Enter your answer in millions.) ain on Sale million b. What would have been the company's Income (Loss) from Operations for this year had it not sold its Mary Jones brand names? (Enter your answer in millions.) from Operations million c. Determine the Income from Operations that Evergreen & Florence would have reported in 2013 had its impairment losses been zero. (Enter your answer in millions.) from Operations millionExplanation / Answer
Solution: a. Gain on sale $275 million Working Notes: Gain on sale = Total sale proceeds - Book value of brand =$275 million - 0 =$275 million b. Loss from Operations $116 million Working Notes: If brand was not sold , Income of operation = current income from operation - gain on sale of brand. =$159 million - $275 million = -$116 million -ve shows loss Loss from Operations $116 million c. Income from operations $93 million Working Notes: If impairment losses were ZERO Income from operations that Evergreen & Florence would have: = Current income from operation + Impairment losses charged earlier. =$80.9 million + $12.1 million =$93 million Please feel free to ask if anything about above solution in comment section of the question.