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, $17,700; cost of goods sold, $7,400; selling expenses, $1,420; general and administrative expenses, $920; interest revenue, $190; interest expense, $330. Income taxes have not yet been recorded. The company’s income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in thousands). All transactions are material in amount.

1. Investments were sold during the year at a loss of $340. Schembri also had an unrealized gain of $440 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 $1,500.
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 $680 in 2021 prior to the sale, and its assets were sold at a gain of $1,640.
4. In 2021, the company’s accountant discovered that depreciation expense in 2020 for the office building was understated by $320.
5. Negative foreign currency translation adjustment for the year totaled $360.

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

An income statement reports the sales and expenses of an entity over a specified time period. The net income or loss from an income statement is closed out to the retained earnings section of the balance sheet on an annual basis. All financial transactions affect the accounting equation through the retained earnings account.

1. Multiple step statement

Schembri Manufacturing

Income Statement

As of December 31, 2021

($ in 000's)
Sales Revenue	$17,700
Cost of Goods Sold	$7,400
Gross Profit	$10,300
Selling Expenses	$1,420
General and Administrative Expense	$920
Total operational expense	$2,340
Operational Income	$7,960
Interest Revenue	$190
Interest Expense	$(330)
Net Interest Income (Expense)	$(140)
Loss from Sale of Investments	$(340)
Restructuring costs	$(1,500)
Total Other Expense	$(1,840)
Income Before Taxes	$5,980
Income Tax (25%)	$1,495
Income before restructuring costs	$4,485
Net gain from sale of division	$960
Net Income	$5,445
Other Comprehensive Income
Unrealized gain on investments	$440
Foreign Currency Transaction loss	$(360)
Total Comprehensive Income	$5,525
Weighted Average Shares outstanding	1,200
Earnings per share (Net income / Weighted Average Shares)	$4.54

2. Statement of comprehensive income for 2021.

Net Income	$5,445
Other Comprehensive Income
Unrealized gain on investments	$440
Foreign Currency Transaction loss	$(360)
Total Comprehensive Income	$5,525

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