Question

During 20X1, Blue Corporation sold products for $2,500,000 (gross amount) with the sales returns and allowances of $50,000. The company incurred selling expenses for $120,000 and administrative expenses for $330,000. During the year, the company purchased 23,000 common shares of Francis Corporation at $8 per share and recorded the FV-NI investments, and purchased 18,000 shares of Davis Corporation at $12 per share and recorded the FV-OCI investments. On December 31, 20X1, the share prices of Francis Corporation and Davis Corporation were $11 per share and $10 per share, respectively. The company recognized interest expense for $62,000. The beginning-of-year balance of inventory was $640,000 and the end-of-year balance of inventory was $590,000. During the year, the company purchased inventory for $1,600,000. On September 1, 20X1, the company discontinued operation of a division that had a loss of $150,000 for its operation in 20X1. The discontinued division had the carrying value of net assets for $230,000. The company received the proceeds of $420,000 from the disposal of the division. The income tax rate was 30%.

Required:

Prepare a multiple-step statement of comprehensive income for the year ended December 31, 20X1, showing expenses by function.

Answer 1

Prepare a multiple-step statement of comprehensive income for the year ended December 31, 20X1, showing expenses by function.

Blue Corporation

Income statement

For the year 20X1

Sales Revenue		$2500000
Less: sales returns and allowances		(50000)
Net sales		$2450000
Less: cost of goods sold		(1650000)
Gross profit		800000
Less: operating expenses:
selling expenses	120000
administrative expenses	330000
Total operating expenses		(450000)
Operating income		350000
Other Non- Operating income or (loss)
Unrealized gain on trading securities	69000
Unrealized loss on trading securities	(39000)
Interest expenses	(62000)
Total Other Non- Operating income or (loss)		(29000)
Income before income tax from contiueing operation		321000
Less: income tax expense @30%		(96300)
Income after income tax from continueing operation		224700
Income or (loss) from discontinued operation:
Loss on discontinued operation division $150000, net of tax	(105000)
Gain from disposal of discontinued division of $190000, net of tax	133000
Net total Income or (loss) from discontinued operation		28000
Net income		$252700

Working:

Beginning inventory	640000
Add: purchase	1600000
Less: Ending inventory	590000
Cost of goods sold	1650000

During the year, the company purchased 23,000 common shares of Francis Corporation at $8 per share and recorded the FV-NI investments, and purchased 18,000 shares of Davis Corporation at $12 per share and recorded the FV-OCI investments. On December 31, 20X1, the share prices of Francis Corporation and Davis Corporation were $11 per share and $10 per share,

Francis

Purchase cost = 23000 * 8 = 184000

Fair value at end = 23000 * 11 = 253000

Unrealized gain on trading securities =253000 - 184000 = 69000

Davis

Purchase cost = 18000 * 12 = 216000

Fair value at end = 18000 * 10 = 180000

Unrealized loss on trading securities = 216000 - 180000 = 36000

On September 1, 20X1, the company discontinued operation of a division that had a loss of $150,000 for its operation in 20X1. The discontinued division had the carrying value of net assets for $230,000. The company received the proceeds of $420,000 from the disposal of the division

Income or (loss) from discontinued operation:

Book value = 230000

Proceeds from division sale = 420000

Gain from disposal of discontinued division = 420000 - 230000 = 190000

tax = 190000 * 30% = 57000

Net of tax = 133000

Loss on discontinued operation = 150000,net of tax = 150000 - 30% = 105000