exercise 4 - 8 (algo) discontinued operations; disposal in subsequent\nkandon enterprises, incorporated, has…

exercise 4 - 8 (algo) discontinued operations; disposal in subsequent\nkandon enterprises, incorporated, 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, 2027, kandon adopted a formal plan to sell the division. the sale was completed on april 30, 2028. at december 31, 2027, the component was considered held for sale. consider the following:\n- on december 31, 2027, the company’s fiscal year - end, the book value of the assets of the horse division was $251,000. on that date, the fair value of the assets, less costs to sell, was $210,000.\n- the before - tax loss from operations of the division for the year was $150,000.\n- the after - tax income from continuing operations for 2027 was $410,000.\n- the company’s effective tax rate is 25%.\nrequired:\n1. prepare a partial income statement for 2027 beginning with income from continuing operations. ignore eps disclosures.\n2. prepare a partial income statement for 2027 beginning with income from continuing operations. assume that the estimated net fair value of the horse division’s assets was $420,000, instead of $210,000. ignore eps disclosures.\ncomplete this question by entering your answers in the tabs below.\nrequired 1\nrequired 2\nprepare a partial income statement for 2027 beginning with income from continuing operations. assume that the estimated net fair value of the horse division’s assets was $420,000, instead of $210,000. ignore eps disclosures.\nnote: amounts to be deducted should be indicated with a minus sign.\nkandon enterprises, incorporated\npartial income statement\nfor the year ended december 31, 2027\nincome from continuing operations $ 410,000\ndiscontinued operations\nloss from operations of discontinued component\nnet income (loss) $ 297,500

exercise 4 - 8 (algo) discontinued operations; disposal in subsequent\nkandon enterprises, incorporated, 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, 2027, kandon adopted a formal plan to sell the division. the sale was completed on april 30, 2028. at december 31, 2027, the component was considered held for sale. consider the following:\n- on december 31, 2027, the company’s fiscal year - end, the book value of the assets of the horse division was $251,000. on that date, the fair value of the assets, less costs to sell, was $210,000.\n- the before - tax loss from operations of the division for the year was $150,000.\n- the after - tax income from continuing operations for 2027 was $410,000.\n- the company’s effective tax rate is 25%.\nrequired:\n1. prepare a partial income statement for 2027 beginning with income from continuing operations. ignore eps disclosures.\n2. prepare a partial income statement for 2027 beginning with income from continuing operations. assume that the estimated net fair value of the horse division’s assets was $420,000, instead of $210,000. ignore eps disclosures.\ncomplete this question by entering your answers in the tabs below.\nrequired 1\nrequired 2\nprepare a partial income statement for 2027 beginning with income from continuing operations. assume that the estimated net fair value of the horse division’s assets was $420,000, instead of $210,000. ignore eps disclosures.\nnote: amounts to be deducted should be indicated with a minus sign.\nkandon enterprises, incorporated\npartial income statement\nfor the year ended december 31, 2027\nincome from continuing operations $ 410,000\ndiscontinued operations\nloss from operations of discontinued component\nnet income (loss) $ 297,500

Answer

Explanation:

Step1: Calculate loss on impairment for first - case

The book value of the horse division's assets is $251,000 and the fair value less costs to sell is $210,000. The loss on impairment is the difference between the book value and the fair - value less costs to sell. $Loss_{impairment1}=251000 - 210000=41000$

Step2: Calculate after - tax loss from discontinued operations for first - case

The before - tax loss from operations of the division is $150,000. The after - tax loss from operations of the discontinued component is $150000\times(1 - 0.25)=112500$. The total after - tax loss from discontinued operations is the sum of the after - tax operating loss and the after - tax impairment loss. Since the impairment loss is also tax - deductible, the total after - tax loss from discontinued operations is $(150000 + 41000)\times(1 - 0.25)=143250$.

Step3: Calculate net income for first - case

Net income = Income from continuing operations - After - tax loss from discontinued operations. So, $Net\ income_1=410000-143250 = 266750$.

Step4: Analyze second - case

When the estimated net fair value of the horse division's assets is $420,000 (greater than the book value of $251,000), there is no impairment loss.

Step5: Calculate after - tax loss from discontinued operations for second - case

The before - tax loss from operations of the division is $150,000. The after - tax loss from operations of the discontinued component is $150000\times(1 - 0.25)=112500$.

Step6: Calculate net income for second - case

Net income = Income from continuing operations - After - tax loss from discontinued operations. So, $Net\ income_2=410000-112500 = 297500$.

Required 1

Particulars Amount
Income from continuing operations $410,000
Discontinued operations:
Loss from operations of discontinued component ($150000\times(1 - 0.25)$) -$112,500
Loss on impairment of discontinued component ($41000\times(1 - 0.25)$) -$30,750
Net income (loss) $266,750

Required 2

Particulars Amount
Income from continuing operations $410,000
Discontinued operations:
Loss from operations of discontinued component ($150000\times(1 - 0.25)$) -$112,500
Net income (loss) $297,500