Question

The preliminary 2021 income statement of Alexian Systems, Inc., is presented below: ALEXIAN SYSTEMS, INC. Income Statement For the Year Ended December 31, 2021 ($ in millions, except earnings per share) Revenues and gains: Sales revenue $ 517 Interest revenue 13 Other income 130 Total revenues and gains 660 Expenses: Cost of goods sold 250 Selling and administrative expense 218 Income tax expense 48 Total expenses 516 Net Income $ 144 Earnings per share $ 14.40 Additional information: Selling and administrative expense includes $35 million in restructuring costs. Included in other income is $124 million in income from a discontinued operation. This consists of $90 million in operating income and a $34 million gain on disposal. The remaining $6 million is from the gain on sale of investments. Cost of goods sold was increased by $4 million to correct an error in the calculation of 2020’s ending inventory. The amount is material.

Required: Prepare a revised income statement for 2021 reflecting the additional facts. Use a multiple-step format. Assume that an income tax rate of 25% applies to all income statement items, and that 10 million shares of common stock were outstanding throughout the year. (Enter your answers in millions rounded to 2 decimal places. Round EPS answers to 2 decimal places.)

Answer 1

Alexian Systems Inc

Multi-step income statement

Particulars	Amount ($)	Amount ($)
Net sales revenue		517
Cost of goods sold (250-4)		246
Gross profit		271
Operating expenses
Selling and administrative expense (218- 35 )	183
Restructuring costs	35
Total operating expense		218
Other income
Interest revenue	13
Gain on sale of investment	6
Total other income		19
Income from continuing operations before income taxes(271-218+19)		72
Income tax expense at 25%		-18
Income from continuing operations		54
Discontinued operations:
Income from operations of discontinued component	124
Income tax expense	-31
Income from discontinued operations		93
Net income		147
Earnings per share (10 million shares)
Discontinued operations	9.3
Net income	5.4	14.7

Working notes

Cost of goods sold = 250 – 4 = 246 (prior period adjustment)

Selling and administrative = 218 – 35 = 183 (restructuring costs)

The difference in net income of $3 million 147-144) is the effect of the inventory error of $4 million, less the 25% tax effect.

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