Question

The ledger of Crane Corporation at November 30, 2021, contains the following summary data: Cash dividends—common $71,500 Operating expenses $1,123,000 Cash dividends—preferred 25,000 Other comprehensive income—loss on equity investments (before income tax) 93,000 Common shares 326,500 Rent revenue 61,000 Cost of goods sold 7,410,000 Preferred shares ($5 noncumulative) 403,000 Depreciation expense 363,000 Retained earnings, December 1, 2020 754,000 Sales 9,033,000 Your analysis reveals the following additional information: 1. The company has a 25% income tax rate. 2. The communications devices division was discontinued on August 31. The profit from operations for the division up to that day was $19,600 before income tax. The division was sold at a loss of $81,500 before income tax. 3. There were 200,000 common and 5,000 preferred shares issued on December 1, 2020, with no changes during the year.

(a) Prepare a multiple-step income statement for the year.

Answer 1

Correct Answer:

Crane Corporation
Income statement
For the year ended 30 November 2021
Sales	$   90,33,000.00
Less: Cost of goods sold	$   74,10,000.00
Gross profit	$   16,23,000.00
Less: Operating expense	$   11,23,000.00
Operating profit	$     5,00,000.00
Rent revenue	$         61,000.00
Income before income tax	$     5,61,000.00
Less: Income tax @ 25%	$     1,40,250.00
Income from continuing operation:	$     4,20,750.00
Discontinued operations
Profit	$         14,700.00
Loss on sale	$       (61,125.00)
Net income	$     3,74,325.00

Working:

	Crane Corporation
	Income statement
	For the year ended 30 November 2021
A	Sales	$   90,33,000.00
B	Less: Cost of goods sold	$   74,10,000.00
C=A-B	Gross profit	$   16,23,000.00
D	Less: Operating expense	$   11,23,000.00
E=C-D	Operating profit	$     5,00,000.00
F	Rent revenue	$         61,000.00
G=E+F	Income before income tax	$     5,61,000.00
H	Less: Income tax @ 25%	$     1,40,250.00
I=G-H	Income from continuing operation:	$     4,20,750.00
	Discontinued operations
J= 19600*(1-.25)	Profit	$         14,700.00
K= -81500*(1-.25)	Gain on sale	$       (61,125.00)
L= I+J+K	Net income	$     3,74,325.00

End of Answer.

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