Question

Rembrandt Paint Company had the following income statement items for the year ended December 31, 2016 ($ in 000s):

Net sales	$	20,000	Cost of goods sold	$	11,500
Interest income		220	Selling and administrative expenses		2,700
Interest expense		390	Restructuring costs		1,000

In addition, during the year the company completed the disposal of its plastics business and incurred a loss from operations of $1.8 million and a gain on disposal of the component’s assets of $2.4 million. 600,000 shares of common stock were outstanding throughout 2016. Income tax expense has not yet been recorded. The income tax rate is 40% on all items of income (loss).

Required:

Prepare a multiple-step income statement for 2016, including EPS disclosures. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands except earnings per share. Round EPS answers to 2 decimal places.)

Answer 1

Rembrandt Paint Company
Income Statement
For the Year Ended December 31, 2016
($ in thousands, except per share amounts)
Sales revenue		$20,000
Cost of goods sold		-$11,500
Gross Profit		$8,500
Operating Expenses:
Selling and Administration	$2,700
Restructuring costs	$1,000
		$3,700
Operating income		$4,800
Interest income (expense), net		$220
Income from continuing operations before income taxes		$5,020
Income tax expense       [$5,020 x 40%]		-$2,008
Income from continuing operations		$3,012
Discontinued operations:
Income from operations of discontinued component    [Refer working note below]	$600
Income tax expense   [$600 x 40%]	-$240
Income on discontinued operation		$360
Net income		$3,372
Earnings per share:
Income from continuing operations      [$3,012,000 ÷ 600,000 shares]		$5.02
Income on discontinued operations      [$360,000 ÷ 600,000 shares]		$0.60
Net income                                           [$3,372,000 ÷ 600,000 shares]		$5.62

.

Working note 1 - Computation of net income from operations of discontinued component (before tax)
Income from disposal of discontinued component	$2,400,000
Less: Loss from Operations of discontinued component	$1,800,000
Net income from operations of discontinued component (before tax)	$600,000

*$600,000 --> $600 (In thousands)