Exercise 4-8 Discontinued operations; disposal in subsequent year [LO4-4] Kandon

Question

Exercise 4-8 Discontinued operations; disposal in subsequent year [LO4-4] Kandon Enterprises, Inc., has two operating divisions; one manufactures machinery and the other breeds and sells horses. Both divisions are considered separate components as defined by generally accepted accounting principles. The horse division has been unprofitable, and on November 15, 2018, Kandon adopted a formal plan to sell the division. The sale was completed on April 30, 2019. At December 31, 2018, the component was considered held for sale. On December 31, 2018, the company's fiscal year-end, the book value of the assets of the horse division was $272,000. On that date, the fair value of the assets, less costs to sell, was $220,000. The before-tax loss from operations of the division for the year was $160,000. The company's effective tax rate is 40%. The after-tax income from continuing operations for 2018 was $420,000. Required: 1. Prepare a partial income statement for 2018 beginning with income from continuing operations. Ignore EPS disclosures. 2. Prepare a partial income statement for 2018 beginning with income from continuing operations. Assuming that the estimated net fair value of the horse division's assets was $440,000, instead of $220,000. Ignore EPS disclosures.

Explanation / Answer

Kandon enterprises inc Partial income statement Income from continuining operation 420000 Dicontinued operation loss from operations of discontinued component -212000 Tax Benefit @ 40% 84800 loss on discontinued business -127200 Net Income 292800 Loss on Discountinued operation particulars Amount loss from operations -160000 impairment loss(272000-220000) -52000 before tax loss -212000 income tax benefit @40% 84800 after tax loss on discountinued operations -127200 Loss from operation of discountinued component including impairment loss -190000 Kandon enterprises inc partial income statement Particulars Amount Amount Income from continuing operations 420000 Discountinuing operations gain & loss losss form operations of discountined -160000 income tax befenit @40% 64000 loss from discontinued business 96000 Net income 324000 There is no impairment loss

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