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, 2016, Kandon adopted a formal plan to sell the division. The sale was completed on April 30, 2017. At December 31, 2016, the component was considered held for sale.

On December 31, 2016, the companys fiscal year-end, the book value of the assets of the horse division was $448,000. 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 companys effective tax rate is 30%. The after-tax income from continuing operations for 2016 was $580,000.

Required:

1.

Prepare a partial income statement for 2016 beginning with income from continuing operations. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

CORRECT ANSWER:

KANDON ENTERPRISES, INC.
Partial Income Statement
For the Year Ended December 31, 2016
Income from continuing operations	$580,000
Discontinued operations gain (loss):
Loss from operations of discontinued component	(388,000)
Income tax benefit	116,400
Loss on discontinued operations	(271,600)
Net income	$308,400

Part 2 (words are right numbers WRONG, EXCEPT 580,000 IS CORRECT)

Prepare a partial income statement for 2016 beginning with income from continuing operations. Assuming that the estimated net fair value of the horse divisions assets was $760,000, instead of $380,000. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

Partial Income Statement

For the year ended December 31, 2016

Income from continuing operations$580,000 CORRECT

Discontinued operations gain (loss):

Loss from operations of discontinued component (8,000) WRONG

Income tax benefit 2,400 WRONG

Loss on discontinued operations(5,600) WRONG

Net income$250,400 WRONG