Question

Corporation for the year ended December 31, 2021 ($ in thousands): sales revenue, $15,300; cost of goods sold, $6,200; selling expenses, $1,300; general and administrative expenses, $800; interest revenue, $40; interest expense, $180. Income taxes have not yet been recorded. The company’s income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in thousands). All transactions are material in amount.
1. Investments were sold during the year at a loss of $220. Schembri also had an unrealized gain of $320 for the year on investments in debt securities that qualify as components of comprehensive income.
2. One of the company’s factories was closed during the year. Restructuring costs incurred were $1,200.
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 $560 in 2021 prior to the sale, and its assets were sold at a gain of $1,400.
4. In 2021, the company’s accountant discovered that depreciation expense in 2020 for the office building was understated by $200.
5. Negative foreign currency translation adjustment for the year totaled $240.

 

Required:
1. Prepare Schembri’s single, continuous multiple-step statement of comprehensive income for 2021, including earnings per share disclosures. There were 1,000,000 shares of common stock
 outstanding at the beginning of the year and an additional 400,000 shares were issued on July 1, 2021. Use a multiple-step format similar to the one in the Concept Review Exercise at the end of Part A of this chapter.
2. Prepare a separate statement of comprehensive income for 2021.

Answer 1

SCHEMBRI MANUFACTURING CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2021
($ in 000s)
Sales revenue ..................................................................			$15,300
Cost of goods sold .........................................................			6,200
Gross profit .....................................................................			9,100
Operating expenses:
Selling expense ............................................................	$1,300
General and administrative expense ............................	800
Restructuring costs ......................................................	1,200
Total operating expenses ........................................			3,300
Operating income ...........................................................			5,800
Other income (expense):
Loss on sales of investments .......................................	(220)
Interest expense ...........................................................	(180)
Interest revenue ...........................................................	40
Other income, net .....................................................			(360)
Income from continuing operations before income taxes			5,440
Income tax expense ........................................................			1,360
Income from continuing operations ...............................			4,080
Discontinued operations:
Income from operations of discontinued component
(including gain on disposal of $1,400) ......................	840
Income tax expense .....................................................	(210)
Income on discontinued operations ................................			630
Net income .....................................................................			4,710
Other comprehensive income, net of tax:
Gain on debt securities ..............................................................	240
Foreign currency translation adjustment ....................	(180)
Total other comprehensive income .........................			60
Comprehensive income .................................................			$ 4,770
Earnings per share:*
Income from continuing operations	$3.40
Discontinued operations	0.53
Net income	$3.93
*Weighted-average shares = 1,000,000 + (400,000÷2) = 1,200,000

2.

SCHEMBRI MANUFACTURING CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2021 ($ in 000s)
Net income .......................................................................		$4,710
Other comprehensive income, net of tax:
Gain on debt securities....................................................	$240
Foreign currency translation adjustment ........................	(180)
Total other comprehensive income .............................		60
Comprehensive income ....................................................		$4,770

Comprehensive income ....................................................

$4,770