exercise 4-8 (algo) discontinued operations; disposal in subsequent year lo4-4 kandon enterprises…

exercise 4-8 (algo) discontinued operations; disposal in subsequent year lo4-4 kandon 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: - on december 31, 2027, the companys 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. - the before - tax loss from operations of the division for the year was $150,000. - the after - tax income from continuing operations for 2027 was $410,000. - the companys effective tax rate is 25%. required: 1. prepare a partial income statement for 2027 beginning with income from continuing operations. ignore eps disclosures. 2. prepare a partial income statement for 2027 beginning with income from continuing operations. assume that the estimated net fair value of the horse divisions assets was $420,000, instead of $210,000. ignore eps disclosures. complete this question by entering your answers in the tabs below. required 1 required 2 prepare a partial income statement for 2027 beginning with income from continuing operations. ignore eps disclosures. note: amounts to be deducted should be indicated with a minus sign. kandon enterprises, incorporated partial income statement for the year ended december 31, 2027 income from continuing operations discontinued operations net income (loss)

exercise 4-8 (algo) discontinued operations; disposal in subsequent year lo4-4 kandon 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: - on december 31, 2027, the companys 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. - the before - tax loss from operations of the division for the year was $150,000. - the after - tax income from continuing operations for 2027 was $410,000. - the companys effective tax rate is 25%. required: 1. prepare a partial income statement for 2027 beginning with income from continuing operations. ignore eps disclosures. 2. prepare a partial income statement for 2027 beginning with income from continuing operations. assume that the estimated net fair value of the horse divisions assets was $420,000, instead of $210,000. ignore eps disclosures. complete this question by entering your answers in the tabs below. required 1 required 2 prepare a partial income statement for 2027 beginning with income from continuing operations. ignore eps disclosures. note: amounts to be deducted should be indicated with a minus sign. kandon enterprises, incorporated partial income statement for the year ended december 31, 2027 income from continuing operations discontinued operations net income (loss)

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. $251000 - 210000=41000$

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

The before - tax loss from operations of the division is $150,000$. The tax rate is 25%. So the tax savings on the loss is $150000\times0.25 = 37500$. The after - tax loss from operations 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 after - tax impairment loss is $41000\times(1 - 0.25)=30750$. The total after - tax loss from discontinued operations is $112500+30750 = 143250$.

Step3: Prepare partial income statement for first - case

Particulars Amount
Income from continuing operations $410000$
Discontinued operations:
Loss from operations of discontinued component, net of tax ($112500$) -$112500$
Loss on impairment of discontinued component, net of tax ($30750$) -$30750$
Net income (loss) $410000-143250 = 266750$

Step4: Calculate for second - case

When the fair value of the horse division's assets is $420,000$ (higher than the book value of $251,000$), there is no impairment loss. The after - tax loss from operations of the division is still $150000\times(1 - 0.25)=112500$.

Step5: Prepare partial income statement for second - case

Particulars Amount
Income from continuing operations $410000$
Discontinued operations:
Loss from operations of discontinued component, net of tax ($112500$) -$112500$
Net income (loss) $410000-112500 = 297500$

Answer:

Required 1:

Particulars Amount
Income from continuing operations $410000$
Discontinued operations:
Loss from operations of discontinued component, net of tax -$112500$
Loss on impairment of discontinued component, net of tax -$30750$
Net income (loss) $266750$

Required 2:

Particulars Amount
Income from continuing operations $410000$
Discontinued operations:
Loss from operations of discontinued component, net of tax -$112500$
Net income (loss) $297500$