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, $17,900; cost of goods sold, $7,500; selling expenses, $1,430; general and administrative expenses, $930; interest revenue, $200; interest expense, $310. Income taxes have not yet been recorded. The company’s income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in thousands). All transactions are material in amount.

1. Investments were sold during the year at a loss of $350. Schembri also had an unrealized gain of $460 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 $1,600.
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 $1,660.
4. In 2021, the company’s accountant discovered that depreciation expense in 2020 for the office building was understated by $330.
5. Negative foreign currency translation adjustment for the year totaled $380.

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 800,000 shares were issued on July 1, 2021.
2. Prepare a separate statement of comprehensive income for 2021.
  

Answer 1

1. Multiple-step Statement of Comprehensive Income

SCHEMBRI MANUFACTURING CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2021
($ in 000s)
Sales revenue		17,900
Cost of goods sold		(7,500)
Gross profit		10,400
Operating expenses:
Selling expense	(1,430)
General and administrative expenses	(930)
Restructuring costs	(1,600)
Total operating expenses		(3,960)
Operating income		6,440
Other income (expense):
Loss on sales of investments	(350)
Interest expense	(310)
Interest revenue	200
Other income (expense)		(460)
Income from continuing operations before income taxes		5,980
Income tax expense (25%)		(1,495)
Income from continuing operations		4,485
Discontinued operations
Income from operations of discontinued component (1,660-680)	980
Income tax expense(980*25%)	(245)
Income from discontinued operations		735
Net income		5,220
Other comprehensive income (loss)
Unrealized gains from investments, net of tax (460*(1-25%))	345
Loss from foreign currency translation, net of tax (380*(1-25%))	(285)
Total other comprehensive income		60
Comprehensive income		5,280
Earnings per share:
Income from continuing operations		3.20
Income from discontinued operations		0.53
Net income		3.73

Workings:

Weighted average shares = 1,000,000+(800,000/2) = 1,400,000

Net income from continuing operations = 4,485/1,400= 3.20

Net income from discontinued operations = 735/1,400 = 0.53

2.Statement of Comprehensive Income

SCHEMBRI MANUFACTURING CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2021
($ in 000s)
Net income		5,220
Other comprehensive income (loss)
Unrealized gains from investments, net of tax (460*(1-25%))	345
Loss from foreign currency translation, net of tax (380*(1-25%))	(285)
Total other comprehensive income		60
Comprehensive income		5,280