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.

Answer 1

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