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Duke Company’s records show the following account balances at December 31, 2018: Sales $ 18,200,000 Cost...

Duke Company’s records show the following account balances at December 31, 2018:

Sales $ 18,200,000
Cost of goods sold 10,600,000
General and administrative expenses 1,160,000
Selling expenses 660,000
Interest expense 860,000


Income tax expense has not yet been determined. The following events also occurred during 2018. All transactions are material in amount.

  1. $460,000 in restructuring costs were incurred in connection with plant closings.
  2. Inventory costing $560,000 was written off as obsolete. Material losses of this type are considered to be unusual.
  3. It was discovered that depreciation expense for 2017 was understated by $66,000 due to a mathematical error.
  4. The company experienced a negative foreign currency translation adjustment of $360,000 and had unrealized gains on investments of $340,000.


Required:
Prepare a single, continuous multiple-step statement of comprehensive income for 2018. The company’s effective tax rate on all items affecting comprehensive income is 40%. Each component of other comprehensive income should be displayed net of tax. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

Solutions

Expert Solution

DUKE COMPANY
Statement of Comprehensive Income
For the Year Ended December 31, 2018
Sales $        18,200,000
Less: Cost of goods sold $        10,600,000
Gross profit $          7,600,000
Less: Operating expenses
General and administrative expenses $        1,160,000
Selling expenses $            660,000
Restructuring costs $            460,000
Write-down of obsolete inventory $            560,000
Total operating expenses $          2,840,000
Operating income $          4,760,000
Add: Non-operating Income (Expense)
Interest expense $            (860,000)
Income before income taxes and extraordinary item $          3,900,000
Income tax @ 40% $          1,560,000
Income before extraordinary item $          2,340,000
Add (Loss): extraordinary item (if any) $                           0
Net income $          2,340,000
Other comprehensive income (loss):
Foreign currency translation adjustment loss, net of 144000 tax benefits (360000*40% = 144000) (360000-144000) $         (216,000)
Unrealized gains on investment securities, net of 136000 tax (340000*40% =1 36000) (340000-136000) $            204,000
Total other comprehensive income (loss) $              (12,000)
Comprehensive Income $          2,328,000
Please note that prior period depreciation expense is not reported in the income statement.

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