Question

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

		2021		2020
Sales revenue	$	5,250,000	$	4,350,000
Cost of goods sold		3,030,000		2,170,000
Administrative expense		970,000		845,000
Selling expense		530,000		472,000
Interest revenue		167,000		157,000
Interest expense		234,000		234,000
Loss on sale of assets of discontinued component		116,000		—

On July 1, 2021, 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, 2021, for $116,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows:

	1/1/2021–9/30/2021						2020
Sales revenue		$	570,000				$	670,000
Cost of goods sold			(375,000	)				(422,000	)
Administrative expense			(67,000	)				(57,000	)
Selling expense			(37,000	)				(37,000	)
Operating income before taxes		$	91,000				$	154,000

In addition to the account balances above, several events occurred during 2021 that have not yet been reflected in the above accounts:

1. A fire caused $67,000 in uninsured damages to the main office building. The fire was considered to be an unusual event.
2. Inventory that had cost $57,000 had become obsolete because a competitor introduced a better product. The inventory was written down to its scrap value of $8,000.
3. Income taxes have not yet been recorded.

Required:
Prepare a multiple-step income statement for the Reed Company for 2021, showing 2020 information in comparative format, including income taxes computed at 25% and EPS disclosures assuming 800,000 shares of outstanding common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)

Answer 1

			Comparative income statement
						2021	2020
	Sales revenue					4680000	3680000
						(5250000-570000)	(4350000-670000)
	Less: Cost of goods sold					2655000	1748000
						(3030000-375000)	(2170000-422000)
	Gross profit				A	2025000	1932000
	Less: Operating expenses
	Administrative expenses					903000	788000
						(970000-67000)	(845000-57000)
	Selling expenses					493000	435000
						(530000-37000)	(472000-37000)
	Loss from fire damage					67000
	Loss from write-down of obsolete inventory					49000
						(57000-8000)
	Total operating expenses				B	1512000	1223000
	Operating income				C=A-B	513000	709000
	Other income (expense):
	Interest revenue					167000	157000
	Interest expense					-234000	-234000
	Total other expenses (net)				D	-67000	-77000
	Income from continuing operations before tax				E=C+D	446000	632000
	Income tax			(at 25%)	F=E*0.25	111500	158000
	Income from continuing operations				A	334500	474000
	Discontinued operations:
	Income (loss) from operations of discontinued component				B	-25000	154000
	Income tax benefit			(at 25%)	C	6250	-38500
							(122000*25%)
	Income (loss) on discontinued operations				D=B+C	-18750	115500
	Net income				E=A+D	315750	589500
	Earnings per share:
	Income from continuing operations					0.42	0.59
						(334500/800000)	(474000/800000)
	Income (loss) from operations of discontinued component					-0.02	0.14
						(-18750/800000)	(115500/800000)
	Net income					0.39	0.74
						(315750/800000)	(589500/800000)
	Note:1- Income (loss) from discontinued componenet
						2021	2020
	Sales					570000	670000
	Less: Expenses
	Cost of goods sold					375000	422000
	Administrative expenses					67000	57000
	Selling expenses					37000	37000
	Loss on sale of assets of discontinued component					116000
	Total expenses					595000	516000
	Income (loss) from discontinued operations before tax					-25000	154000