Question

Below is the income statement for Irwin Inc. in a single-step format.

Irwin Inc Income Statement For the Year Ended December 31, 2019    Sales     2,950,000    Rent Income           13,560     2,963,560 Costs and Expenses:    Cost of Sales     2,265,120    Selling and Administrative Expenses        322,000    Interest Expense     46,589.00    Loss on the Sale of Plant Assets     14,950.00     2,648,659    Income Before Taxes 314,901.00    Income Taxes 111,555.00    Net Income 203,346.00    Earnings per Share $     7.30
Required: 1. Construct multiple-step format income statement. 2. Recalculate the net income, but with the unusual loss removed. 3. Why do you think the unusual loss is not considered extraordinary or a disposal of a segment?
with explanation please

Answer 1

1) Below is the Income Statement for Irwin Inc. in multiple-step format.

Irwin Inc.

Income Statement.

For the Year Ended December 31, 2019

Sales                  29,50,000

Cost of Sales (-)    22,65,120

Gross Profit        6,84,880

Operating Expenses:

Selling and Administrative Expenses     3,22,000

Operating Income =(Gross Profit - Operating Expenses) = (6,84,880 - 3,22,000) = 3,62,880

Non-Operating or other:

Rent income                 13,560

Interest Expense (-)       46,589

Loss on the sale of

Plant assets      (-)        14,950

Income Taxes    (-)      1,11,555

Total non-operating(-) 1,59,534

Net Income = Operating Income + Total Non-operating = 3,62,880 + (-)1,59,534

                                                                               = 3,62,880 - 1,59,534

                                                                               = 2,03,346

2) Net Income                                           2,03,346

Loss on the sale

of plant assets         14,950

Net income with unusual loss removed     2,18,296

3) Unusual loss is a norecurring or one time loss that is not considered part of normal business operations. Unusual loss may be recorded on a income statement as a separate component of income from continuing operations, or may be identified in the footnotes to the financial statements..

Unusual loss may include,

• loss from discontinued operation
• loss from early retirement of debt
• loss from sale of assets etc.

Extraordinary loss must be both Unusual and Infrequent (not expected to recurr in forseeable future). While unusual loss only need to satify one of these criteria.

Extraordinary loss may include,

• loss from an unusual and infrequent act of god or calamity
• prohibition of goods or services by a new law
• condemning property by a domestic government etc.

A loss on disposal of a segment is a deduction from income from continuing operations.

So, it is clear that unusual loss is not considered extraordinary or a disposal of a segment.