Discuss AICPA CPA-Financial Exam Topic 2 Question 127

Envoy Co. manufactures and sells household products. Envoy experienced losses associated with its small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest of Envoy's operations. Envoy plans to sell the small appliance group with its operations. What is the earliest point at which Envoy should report the small appliance group as a discontinued operation?

AWhen Envoy classifies it as held for sale.

BWhen Envoy receives an offer for the segment.

CWhen Envoy first sells any of the assets of the segment.

DWhen Envoy sells the majority of the assets of the segment.

Suggested Answer: A

Choice 'a' is correct. The earliest period that a component of an entity can be reported in discontinued operations is when the component meets the following 'held for sale' criteria:

1. Management commits to a plan to sell the component.

2. The component is available for immediate sale in its present condition.

3. An active program to locate a buyer has been initiated.

4. The sale of the component is probable and the sale is expected to be completed within one year.

5. The sale of the component is being actively marketed.

6. It is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn.

Choices 'b', 'c', and 'd' are incorrect, per the Explanation: above.

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17 comments · newest first

Yvonne 22 days ago

Exactly! A aligns with accounting standards.

Vi 28 days ago

A is definitely the earliest point. Clear guidelines matter.

Merissa 1 month ago

D feels like waiting too long. A is the best choice.

Skye 1 month ago

C seems off. Selling assets doesn't mean it's discontinued yet.

Carlee 1 month ago

B is too early. Needs to be classified first.

Kindra 2 months ago

But what about B? An offer shows intent.

Miss 2 months ago

I agree, A makes sense. Clear distinction is important.

Lonna 2 months ago

I think A is correct. Held for sale is key.

Douglass 2 months ago

D makes sense if they want to be thorough, but A feels safer.

Latanya 2 months ago

Wait, how can they report it before selling anything? Seems off.

Tawna 2 months ago

I think B could be valid too, but not sure.

Erin 3 months ago

Totally agree, A is the right choice!

Alexia 3 months ago

It should be reported when classified as held for sale.

Lavonda 3 months ago

I lean towards D because it seems like they need to sell most of the assets to really consider it discontinued, but I’m not completely confident.

Karrie 3 months ago

I feel like it could be C, but then again, I recall something about needing to complete the sale of the majority of assets to report it properly.

Nan 3 months ago

I'm not entirely sure, but I remember a practice question where we discussed the criteria for discontinued operations. It might be B, but I could be mixing it up.

Herman 4 months ago

I think the answer might be A, since it seems like that's when they would officially recognize it as held for sale.

AICPA CPA-Financial Exam - Topic 2 Question 127 Discussion