Question

The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2021 ($ in thousands): sales revenue, $17,300; cost of goods sold, $7,200; selling expenses, $1,400; general and administrative expenses, $900; interest revenue, $150; interest expense, $250. Income taxes have not yet been recorded. The company’s income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in thousands). All transactions are material in amount.

1. Investments were sold during the year at a loss of $320. Schembri also had an unrealized gain of $420 for the year on investments in debt securities that qualify as components of comprehensive income.
2. One of the company’s factories was closed during the year. Restructuring costs incurred were $1,300.
3. During the year, Schembri completed the sale of one of its operating divisions that qualifies as a component of the entity according to GAAP. The division had incurred a loss from operations of $660 in 2021 prior to the sale, and its assets were sold at a gain of $1,600.
4. In 2021, the company’s accountant discovered that depreciation expense in 2020 for the office building was understated by $300.
5. Negative foreign currency translation adjustment for the year totaled $320.

Required:
1. Prepare Schembri’s single, continuous multiple-step statement of comprehensive income for 2021, including earnings per share disclosures. One million shares of common stock were outstanding at the beginning of the year and an additional 400,000 shares were issued on July 1, 2021.
2. Prepare a separate statement of comprehensive income for 2021.

Answer 1

Requirement 1: Prepare continuous multiple-step statement of comprehensive income as follows

SMC Inc
Statement of Comprehensive Income
For the Year Ended December 31, 2021 ($ in thousands)
Sales Revenue		$17,300
Cost of Goods Sold		$7,200
Gross Profit		$10,100
Operating Expenses
Selling Expenses	$1,400
General and Administrative Expenses	$900
Restructuring Costs	$1,300
Total Operating Expenses		$3,600
Income from Operations		$6,500
Other Income (Expenses)
Interest Expense	($250)
Interest Income	$150
Loss on Sale of Investments	($320)
Total Other Income (Expenses)		($420)
Income from Continuing Operations before income Tax		$6,080
Income Tax Expense ($6,080 × 25%)		$1,520
Income from Continuing Operations		$4,560
Discontinued Operations:
Loss from operations	($660)
Gain disposal of assets	$1,600
Income Tax Expense ($1,600 − $660) ×25%	($235)
Income from Discontinued Operations, net of tax		$705
Net Income		$5,265
Other Comprehensive Income:
Unrealized Gains from Investments, net of tax ($420 × (1−25%))	$315
Loss from Foreign Currency Translation, net of tax ($320 × (1−25%))	($240)
Total Other Comprehensive Income		$75
Comprehensive Income		$5,340
Earnings Per Share
Income from Continuing Operations $4,560 ÷ (1,000 + (400 ÷ 2))		$3.80
Discontinued Operations $705 ÷ (1,000 + (400 ÷ 2))		$0.59
Net Income		$4.39

Requirement 2: Prepare the separate statement of comprehensive income as follows

SMC Inc
Statement of Comprehensive Income
For the Year Ended December 31, 2021 ($ in thousands)
Net Income		$5,265
Other Comprehensive Income (Loss):
Unrealized Gains from Investments, net of tax ($420 × (1−25%))	$315
Loss from Foreign Currency Translation, net of tax ($320 × (1−25%))	($240)
Total Other Comprehensive Income		$75
Comprehensive Income		$5,340

The error related to depreciation expense will be corrected as prior period adjustment and will not be reported in the current period income statement.