Final answer:
The partial income statement includes income from continuing operations of $420,000, a pre-tax loss from discontinued operations of $212,000, a tax benefit of $84,800, resulting in a net loss from discontinued operations of $127,200, and a net income of $292,800.
Step-by-step explanation:
Kandon Enterprises, Inc., following generally accepted accounting principles (GAAP), must report the disposal of a segment of its business as a discontinued operation. The partial income statement for the year 2018 will reflect the results from continuing operations and separately present the results from discontinued operations that include the operation losses and the impairment loss due to the revaluation of the horse division's assets.
Income from Continuing Operations: $420,000
Discontinued Operations:
Loss from operations of horse division (before tax): ($160,000)
Impairment loss: ($272,000 book value - $220,000 fair value) = ($52,000)
Total loss from discontinuing operations before tax: ($160,000 + $52,000) = ($212,000)
Tax benefit on loss (40% of $212,000): $84,800
Net loss from discontinued operations: ($212,000 - $84,800) = ($127,200)
Net Income (income from continuing operations minus net loss from discontinued operations): ($420,000 - $127,200) = $292,800
The operation loss and impairment loss create a combined total pre-tax loss which then benefits from a tax benefit at the effective tax rate to yield the net loss from discontinued operations. This net loss is then subtracted from the income from continuing operations to arrive at the net income for 2018.