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 $ 4,600,000 $ 3,700,000 Cost of goods sold 2,900,000 2,040,000 Administrative expenses 840,000 715,000 Selling expenses 400,000 352,000 Interest revenue 154,000 144,000 Interest expense 208,000 208,000 Loss on sale of assets of discontinued component 66,000 — 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 $66,000 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 $ 440,000 $ 540,000 Cost of goods sold (310,000 ) (344,000 ) Administrative expenses (54,000 ) (44,000 ) Selling expenses (24,000 ) (34,000 ) Operating income before taxes $ 52,000 $ 118,000 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 $54,000 in uninsured damages to the main office building. The fire was considered to be an infrequent but not unusual event. Inventory that had cost $44,000 had become obsolete because a competitor introduced a better product. The inventory was sold as scrap for $7,000. 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

Answer 1

Reed Company
Multi-step Income Statement
for the year ended December 31, 2018
	2018	2017
	Amount
Sales	$4,160,000	$3,160,000
Cost of goods sold	$2,590,000	$1,696,000
Gross Profit	$1,570,000	$1,464,000
Operating Expenses:
Administrative expenses	$786,000	$671,000
Selling expenses	$376,000	$318,000
Total Operating expenses	$1,162,000	$989,000
Income from operations	$408,000	$475,000
Non operating income and expenses:
Interest revenue	$154,000	$144,000
Interest expense	($208,000)	($208,000)
Total non operating expenses	($54,000)	($64,000)
Income before Income Tax	$354,000	$411,000
Income tax	$141,600	$164,400
Income from continuing operations	$212,400	$246,600
Discontinued Operations:
Income from operation less income tax $20800	$31,200	$70,800
Loss on disposal less income tax $26400	($39,600)
Total discontinued operation	($8,400)	$70,800
Net income	$204,000	$317,400
Earnings per share
Profit from Continuing operating	$0.42	(212400/500000)
Discontinued Operation	($0.02)	(-8400/500000)
Net Income	$0.41	(204000/500000)