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, $18,900; cost of goods sold, $8,000; selling expenses, $1,480; general and administrative expenses, $980; interest revenue, $240; interest expense, $200. Income taxes have not yet been recorded. The company’s income tax rate is 40% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2018 ($ in 000s). All transactions are material in amount.

1. Investments were sold during the year at a loss of $400. Schembri also had unrealized gains of $550 for the year on investments.
2. One of the company’s factories was closed during the year. Restructuring costs incurred were $2,100.
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 $740 in 2018 prior to the sale, and its assets were sold at a gain of $1,760.
4. In 2018, the company’s accountant discovered that depreciation expense in 2017 for the office building was understated by $380.
5. Negative foreign currency translation adjustment for the year totaled $420.

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

Ques 1

Schembri Mnaufacturing Company			Explanation
Statement of comprehensive income
For the year ended Dec 31, 2018
Sales Revenue		$              18,900.00	Given
Cost of goods sold		$                 8,000.00	Given
Gross profit		$              10,900.00	Sales-COGS
Operating expenses:
Selling	$       1,480.00		Given
General and administrative	$          980.00		Given
Restructutring Cost	$       2,100.00		Given
Total operating expenses		$                 4,560.00	Sum of the expenses
Operating Income		$                 6,340.00	Gross Profit-expenses
Operating Income(expense)
Loss on sales of Investment	$        (400.00)		Given
Interest Expense	$        (200.00)		Given
Interest revenue	$          240.00		Given
Other Income(expense)		$                  (360.00)	Total
Income from continuing operations before inocme taxes
and extraordinary items		$                 5,980.00	Operating Income -other income/(expense)
Income Tax Expense(40%)		$                 2,392.00	$5980*40%
Income from continuing operations before extraordinary items		$                 3,588.00
Discountinued operations:
Income from operations of discontinued component
(including loss on disposal )	$       1,020.00		$1,760-$740=$1020
Income Tax benefit	$        (408.00)		($1020)*40%
Loss on discontinued operations		$                    612.00
Income before extraordinary item		$                 4,200.00
Extraordinary item:			No data provided in the question
		$                              -
Net income		$                 4,200.00
Other comprehensive income/(Loss)
Unrealised Gain from Investment , net of $220 tax	$          330.00		550*40%=$220 tax ,net $550-220= 330
Loss from Foreign currency translation , net oftax	$        (252.00)	$                       78.00	$420*40%=$168 tax , net $420-$168=$252
Comprehensive Income		$                 4,278.00
Basic Earnings per share
Income form continuinf operations before extraordinary item	$               2.99		$3,588/1200
Discontinued operations	$               0.51		$612/1200
extraordinary gain/(loss)	$                    -
Net Income	$               3.50
Notes:
1)Depriciation expense is a prior period adjustment (to retained earnings) and is not reported in income statement
2)Weighted average shares =1,000,000 + (400,000/2)=1,200,000

Ques 2

Schembri Mnaufacturing Company
Statement of comprehensive income
For the year ended Dec 31, 2018
Net Income		$       4,200.00
Other comprehensive income/(Loss)
Unrealised Gain from Investment , net of tax	$            330.00
Loss from Foreign currency translation , net of tax	$          (252.00)
Total comprehensive income		$             78.00
Comprehensive income		$       4,278.00