Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Chapter 4, Problem 4.8E
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 $250,000. On that date, the fair value of the assets, less costs to sell, was $200,000. The before-tax loss from operations of the division for the year was $140,000. The company’s effective tax rate is 40%. The after-tax income from continuing operations for 2018 was $400,000.
Required:
1. Prepare a partial income statement for 2018 beginning with income from continuing operations. Ignore EPS disclosures.
2. Repeat requirement 1 assuming that the estimated net fair value of the horse division’s assets was $400,000, instead of $200,000.
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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, 2024, Kandon adopted a formal plan to sell the division. The sale was completed on April 30, 2025. At December 31, 2024, the component was considered held for sale. Consider the following:
On December 31, 2024, 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 after-tax income from continuing operations for 2024 was $580,000.
The company’s effective tax rate is 25% .
Required:
Prepare a partial income…
Exercise 4-6 (Algo) Discontinued operations [LO4-4, 4-5]
Chance Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are
considered separate components as defined by generally accepted accounting principles. The farm equipment component had been
unprofitable, and on September 1, 2021, the company adopted a plan to sell the assets of the division. The actual sale was completed
on December 15, 2021, at a price of $740,000. The book value of the division's assets was $1,290,000, resulting in a before-tax loss of
$550,000 on the sale.
The division incurred a before-tax operating loss from operations of $160,000 from the beginning of the year through December 15.
The income tax rate is 25%. Chance's after-tax income from its continuing operations is $690,000.
Required:
Prepare an income statement for 2021 beginning with income from continuing operations. Include appropriate EPS disclosures
assuming that 100,000 shares of common…
Exercise 4-6 (Algo) Discontinued operations [LO4-4, 4-5]
Chance Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are
considered separate components as defined by generally accepted accounting principles. The farm equipment component had been
unprofitable, and on September 1, 2021, the company adopted a plan to sell the assets of the division. The actual sale was completed
on December 15, 2021, at a price of $740,000. The book value of the division's assets was $1,290,000, resulting in a before-tax loss of
$550,000 on the sale.
The division incurred a before-tax operating loss from operations of $160,000 from the beginning of the year through December 15.
The income tax rate is 25%. Chance's after-tax income from its continuing operations is $690,000.
Required:
Prepare an income statement for 2021 beginning with income from continuing operations. Include appropriate EPS disclosures
assuming that 100,000 shares of common…
Chapter 4 Solutions
Intermediate Accounting
Ch. 4 - The income statement is a change statement....Ch. 4 - What transactions are included in income from...Ch. 4 - Prob. 4.3QCh. 4 - Prob. 4.4QCh. 4 - Prob. 4.5QCh. 4 - What are restructuring costs and where are they...Ch. 4 - Define intraperiod tax allocation. Why is the...Ch. 4 - How are discontinued operations reported in the...Ch. 4 - What is meant by a change in accounting principle?...Ch. 4 - Prob. 4.10Q
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