Which statement about discontinued operations is correct?

• A. Discontinued operations are reported separately from continuing operations and net of tax.
• B. Discontinued operations are included with continuing operations before tax.
• C. Discontinued operations are recognized only in the notes.
• D. Discontinued operations are reported as a separate entity on the balance sheet.

Answer: (A)

Discontinued operations are shown on the income statement separately from what the company continues to do, with the amount presented net of tax. This separation keeps the ongoing business performance clear while isolating the results tied to a component that has been disposed of or is held for sale. The tax effect tied to that disposed component is included in the line for discontinued operations, so the figure you see reflects the after-tax impact.

That’s why the statement describing discontinuation as being reported separately from continuing operations and net of tax is the best choice. It captures both the separation from ongoing results and the after-tax nature of the amount. The alternatives aren’t correct because they imply mixing with continuing results, relying only on notes, or presenting a separate entity on the balance sheet, none of which aligns with standard presentation.