Problem 1 - Kandon Enterprise, Inc., has two operating division; 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 Nov 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 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 cost 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 operation for 2016 was $400,000.
Required:
1. Prepare a partial income statement for 2016 beginning with income from continuing operation. Ignore EPS disclosures.
2. Repeat requirement 1 assuring that the estimated net fair value of the horse division's assets was $400,000, instead of$200,000.0
Problem 2 - Determine the book value of the division's assets on December 31, 2016.
The Esposito Import Company had 1 million shares of common stock outstand during 2016. Its income statement reported the following items: income from continuing operation, $5 million; loss from discontinued operation, $1.6 million. All of these amounts are net of tax.
Required: Prepare the 2016 EPS presentation for the Esposito Import Company.