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 $438,000. On that date, the fair value of the assets, less costs to sell, was $380,000. The before-tax loss from operations of the division for the year was $320,000. The company’s effective tax rate is 25%. The after-tax income from continuing operations for 2021 was $580,000.

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 $760,000, instead of $380,000. Ignore EPS disclosures.

• Required 1
• Required 2

Prepare a partial income statement for 2021 beginning with income from continuing operations. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

	KANDON ENTERPRISES, INC. Partial Income Statement For the Year Ended December 31, 2021 Income from continuing operations $580,000 Discontinued operations gain (loss): Loss from operations of discontinued component Income tax benefit Loss on discontinued operations 0 Net income (loss)

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 $760,000, instead of $380,000. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

	KANDON ENTERPRISES, INC. Partial Income Statement For the Year Ended December 31, 2021 Income from continuing operations Discontinued operations gain (loss): 0 Net income (loss)

Answer 1

Answer is given below with working notes:

$580,000 KANDON ENTERPRISES, INC. Partial Income Statement For the Year Ended December 31, 2021 Income from continuing operations Discontinued operations gain (loss): Loss from operations of discontinued component -$378,000 Income tax benefit $94,500 Loss on discontinued operations Net income (loss) - $283,500 $296,500 Working notes: Loss on discontinued operations Impairment loss Net Loss before tax Tax at 25% Net Loss on discontinued operations (after tax) -$320,000 -$58,000 As per below working -$378,000 $94,500 -$283,500 Impairment loss Fair value of assets less costs to sell Less: book value of assets of horse division Impairment loss $380,000 $438,000 -$58,000 $580,000 KANDON ENTERPRISES, INC. Partial Income Statement For the Year Ended December 31, 2021 Income from continuing operations Discontinued operations gain (loss): Loss from operations of discontinued component -$320,000 Income tax benefit $80,000 Loss on discontinued operations Net income (loss) - $240,000 $340,000 Note: No Impairment loss on Horse division since fair value of assets is higher than book value of assets