Question

Required:
Refer to the information presented in P 4–4. Prepare a revised income statement for 2021 reflecting the additional facts. Use a multiple-step format similar to Illustration 4–4 of this chapter to prepare income from continuing operations, and then add to this the discontinued operations portion of the income statement. Assume that an income tax rate of 25% applies to all income statement items, and that 20 million shares of common stock were outstanding throughout the year.

 

P 4–4

The preliminary 2021 income statement of Alexian Systems, Inc., is presented below:

Additional Information:
1. Selling and administrative expense includes $26 million in restructuring costs.
2. Included in other income is $120 million in income from a discontinued operation. This consists of $90 million in operating income and a $30 million gain on disposal. The remaining $6 million is from the gain on sale of investments.
3. Cost of goods sold was increased by $40 million to correct an error in the calculation of 2020’s ending inventory. The amount is material.

Answer 1

ALEXIAN SYSTEMS, INC.
Income Statement
For the Year Ended December 31, 2021
($ in millions except per share data)
Sales revenue ....................................................................		$425
Cost of goods sold ...........................................................		[1] 205
Gross profit ......................................................................		220
Operating expenses:
Selling and administrative expense ...............................	[2] $128
Restructuring costs ........................................................	26
Total operating expenses ............................................		154
Operating income .............................................................		66
Other income:
Interest revenue .............................................................	4
Gain on sale of investments ..........................................	6
Total other income .....................................................		10
Income from continuing operations before    income taxes ..................................................................		76
Income tax expense ..........................................................		[3] 19
Income from continuing operations .................................  Discontinued operations: Income from operations of discontinued    component (including gain on disposal of $30) ........    Income tax expense .......................................................  Income on discontinued operations .................................  Net income .......................................................................	120 (30)	57          90 $147
Earnings per share: Income from continuing operations .................................  Discontinued operations ..................................................  Net income .......................................................................		$ 2.85  4.50 $ 7.35

         [1] $245 – $40 (prior period adjustment)

         [2] $154 – $26 (restructuring costs)

         [3] 25% × $76

Net income ....................................................................... $ 7.35