Question

The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2018 ($ in 000s): sales revenue, $18,500; cost of goods sold, $7,800; selling expenses, $1,460; general and administrative expenses, $900; interest revenue, $100; interest expense, $250. Income taxes have not yet been recorded. The company’s income tax rate is 20% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2018 ($ in 000s). All transactions are material in amount. Investments were sold during the year at a loss of $380. Schembri also had unrealized gains of $480 for the year on investments. One of the company’s factories was closed during the year. Restructuring costs incurred were $1,900. 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 $700 in 2018 prior to the sale, and its assets were sold at a gain of $1,720. In 2018, the company’s accountant discovered that depreciation expense in 2017 for the office building was understated by $360. Negative foreign currency translation adjustment for the year totaled $400. Required: 1. Prepare Schembri’s single, continuous multiple-step statement of comprehensive income for 2018, 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, 2018. 2. Prepare a separate statement of comprehensive income for 2018.

Answer 1

1. Single-Step Income Statement:

Revenue and Gains:

Sale Revenue $ 18,500

Interest Revenue $ 100

Sale of Unit $ (1,720-700) = $ 1,020

Total Revenue and Gains $ 19,620

Expenses and Losses:

Cost of Goods Sold $ 7,800

Selling Expenses $ 1,460

General Expense $ 900

Interest Expense $ 250

Loss on Sale of Investment $ 380

Restructure Loss $ 1,900

Depreciation $ 360

Forex Loss $400

Tax ($18500+$100-$7800-$1460-$900-$250)*20%= $1,638

Total Expenses and Losses $ 15,088

Net Income = $ 4,532

1. Multiple Step Income Statement:

Sales $ 18,500

Cost of Goods Sold $ 7,800

Gross Profit $ $10,700

Operating Expenses

Selling Expenses $ 1,460

General Expenses $ 900

Interest Expenses $ 250

Depreciation $ 360

Income Tax (20%) $1,638

Total Operating Expenses $4,608

Operating Income $ $6,092

Non Operating and Others

Forex Loss $ (400)

Interest Revenue $ 100

Loss on Sale of Investment $ (380)

Restructure Loss $ (1,900)

Sale of Unit $ 1,020

Total Non Operating Expense $ (1,560)

Net Income $ 4,532

1. Earnings Per Share

Total opening common stock 1,000,000

Issued mid-year 400,000

Equivalent Common Stock 1,000,000+ (400,000*6/12)

= 1,200,000

Earnings= $ 4,532,000/ 1,200,000

= $ 3.765 per share

1. Comprehensive Income Statement

Net income from income statement $ 4,532

Unrealized Gain $480

Foreign Currency Translation Loss $ 400 (already a part of income statement)

Total Comprehensive Income Statement $ 5,012