Question

Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31):

		2018		2017
Sales	$	4,500,000	$	3,600,000
Cost of goods sold		2,880,000		2,020,000
Administrative expenses		820,000		695,000
Selling expenses		380,000		332,000
Interest revenue		152,000		142,000
Interest expense		204,000		204,000
Loss on sale of assets of discontinued component		58,000		—

On July 1, 2018, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by GAAP. The assets of the component were sold on September 30, 2018, for $58,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows:

	1/1/18-9/30/18						2017
Sales		$	420,000				$	520,000
Cost of goods sold			(300,000	)				(332,000	)
Administrative expenses			(52,000	)				(42,000	)
Selling expenses			(22,000	)				(32,000	)
Operating income before taxes		$	46,000				$	114,000

In addition to the account balances above, several events occurred during 2018 that have not yet been reflected in the above accounts:

1. A fire caused $52,000 in uninsured damages to the main office building. The fire was considered to be an infrequent but not unusual event.
2. Inventory that had cost $42,000 had become obsolete because a competitor introduced a better product. The inventory was sold as scrap for $5,000.
3. Income taxes have not yet been recorded.

Required:
Prepare a multiple-step income statement for the Reed Company for 2018, showing 2017 information in comparative format, including income taxes computed at 40% and EPS disclosures assuming 300,000 shares of common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)
  

REED COMPANY Comparative Income Statements For the Years Ended December 31 2018 2017 Sales revenue Cost of goods sold Gross profit (loss) 0 0 Operating expenses: Administrative Selling Loss from fire damage Loss from write-down of obsolete inventory Total operating expenses 0 0 Operating income 0 0 Other income (expense): Interest revenue Interest expense Total other expenses (net) 0 0 Income from continuing operations before income taxes Income tax expense Income from continuing operations 0 0 Discontinued operations: Income (loss) from operations of discontinued component Income tax benefit (expense) Income (loss) on discontinued operations 0 0 Net income $0 $0 Earnings per share: Income from continuing operations Discontinued operations Net income

Answer 1

Workings