Question

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, 2021, Kandon adopted a formal plan to sell the division. The sale was completed on April 30, 2022. At December 31, 2021, the component was considered held for sale.

On December 31, 2021, the company’s fiscal year-end, the book value of the assets of the horse division was $427,000. On that date, the fair value of the assets, less costs to sell, was $370,000. The before-tax loss from operations of the division for the year was $310,000. The company’s effective tax rate is 25%. The after-tax income from continuing operations for 2021 was $570,000.

Required:

1. Prepare a partial income statement for 2021 beginning with income from continuing operations. Ignore EPS disclosures.

2. Prepare a partial income statement for 2021 beginning with income from continuing operations. Assume that the estimated net fair value of the horse division’s assets was $740,000, instead of $370,000. Ignore EPS disclosures.

Answer 1

| Amount ( 570,000 | Answer: (1) Partial income statement for 2021 particulary Income from continuing operatłong a) Discountinued Openalang : Loss from operations of Discontinued component (including impairment) Income tax benefit loss on Discontinued operations (6) Net income (atb) $67,000) 91,750 1275,250) | 294,750 Met Cobe bebote 7000-370,000) working Noty! | Calculate the loss on Discontinued operations : - particulary Amount (opevating is 310,000 Impairment both 157000 367,000 Income tax benefit (25%). 191,750 lovet after tarse loss on Discon- 275,250 tinued operations 2) partial Income Statement for 2021.- particulars Amount All Income from continuing openations (a) Discontinued openalions : iss from operations of ou continued (310,000) Component (including Prepaiment) Income tar benefit (B10000 x 257) 77,500 Coss on Discontinued openations (6) 1232500) Net Income Carb) 337,500