Question

Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31):

		2018		2017
Sales	$	5,050,000	$	4,150,000
Cost of goods sold		2,990,000		2,130,000
Administrative expenses		930,000		805,000
Selling expenses		490,000		442,000
Interest revenue		163,000		153,000
Interest expense		226,000		226,000
Loss on sale of assets of discontinued component		102,000		—

On July 1, 2018, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by GAAP. The assets of the component were sold on September 30, 2018, for $102,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows:

	1/1/18-9/30/18						2017
Sales		$	530,000				$	630,000
Cost of goods sold			(355,000	)				(398,000	)
Administrative expenses			(63,000	)				(53,000	)
Selling expenses			(33,000	)				(43,000	)
Operating income before taxes		$	79,000				$	136,000

In addition to the account balances above, several events occurred during 2018 that have not yet been reflected in the above accounts:

A fire caused $63,000 in uninsured damages to the main office building. The fire was considered to be an infrequent but not unusual event.

Inventory that had cost $53,000 had become obsolete because a competitor introduced a better product. The inventory was sold as scrap for $4,000.

Income taxes have not yet been recorded.

Required:
Prepare a multiple-step income statement for the Reed Company for 2018, showing 2017 information in comparative format, including income taxes computed at 40% and EPS disclosures assuming 500,000 shares of common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)

REED COMPANY
Comparative Income Statements
For the Years Ended December 31
	2018	2017
Sales revenue	not attempted	not attempted
Cost of goods sold	not attempted	not attempted
Gross profit (loss)	0	0
Operating expenses:
Administrative	not attempted	not attempted
Selling	not attempted	not attempted
Loss from fire damage	not attempted	not attempted
Loss from write-down of obsolete inventory	not attempted	not attempted
Total operating expenses	0	0
Operating income	0	0
Other income (expense):
Interest revenue	not attempted	not attempted
Interest expense	not attempted	not attempted
Total other expenses (net)	0	0
Income from continuing operations before income taxes	not attempted	not attempted
Income tax expense	not attempted	not attempted
Income from continuing operations	0	0
Discontinued operations:
Income (loss) from operations of discontinued component	not attempted	not attempted
Income tax benefit (expense)	not attempted	not attempted
Income (loss) on discontinued operations	0	0
Net income	$0	$0
Earnings per share:
Income from continuing operations	not attempted	not attempted
Discontinued operations	not attempted	not attempted
Net income	not attempted	not attempted

Answer 1