Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year

Question

Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31): 2016 2015 Sales $ 4,850,000 $ 3,950,000 Cost of goods sold 2,950,000 2,090,000 Administrative expenses 890,000 765,000 Selling expenses 450,000 402,000 Interest revenue 159,000 149,000 Interest expense 218,000 218,000 Loss on sale of assets of discontinued component 86,000 — On July 1, 2016, 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, 2016, for $86,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows: 1/1/16-9/30/16 2015 Sales $ 490,000 $ 590,000 Cost of goods sold (335,000 ) (374,000 ) Administrative expenses (59,000 ) (49,000 ) Selling expenses (29,000 ) (39,000 ) Operating income before taxes $ 67,000 $ 128,000 In addition to the account

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Answer: REED COMPANY Comparative Income Statements For the Years Ended December 31 2016 2015 Sales Revenue($4,850,000 - $490,000);(3,950,000 -$590,000) $4,360,000 $3,360,000 Cost of goods sold($2,950,000 - $335,000);($2,090,000 -$374,000) -$2,615,000 -$1,716,000 Gross profit $1,745,000 $1,644,000 Operating expenses: Administrative expenses ($890,000 -$59,000);($765,00-$49,000) $831,000 $716,000 Selling expenses($450,000 -$29,000);($402,000 -$39,000) $421,000 $363,000 Loss from fire damage $59,000 Loss from write-down of obsolete inventory($49,000 -$9,000) $40,000 Total operating expenses -$1,351,000 -$1,079,000 Operating income $394,000 $565,000 Other income (expense): Interest revenue $159,000 $149,000 Interest expense -$218,000 -$218,000 Total other expenses (net) -$59,000 -$69,000 Income from continuing operations before income taxes and extraordinary item $335,000 $496,000 Income tax expense 30% -$100,500 -$148,800 Income from continuing operations before extraordinary item $234,500 $347,200 Discontinued operations: Income (loss) from operations of discontinued component (including loss on disposal of $86,000 in 2016) -$19,000 $128,000 Income tax benefit (expense) $5,700 -$38,400 Income (loss) on discontinued operations -$13,300 $89,600 Income before extraordinary item $221,200 $436,800 Loss from early extinguishment of debt (net$5700 +(-$38400)of tax benefit) -$147,000 Net income $74,200 $436,800 Earnings per share: assuming 700,000 shares of common stock. Income from

In addition to the account balances above, several events occurred during 2016 that have not yet been reflected in the above accounts:
1.	A fire caused $59,000 in uninsured damages to the main office building. The fire was considered to be an infrequent but not unusual event.
2.	Inventory that had cost $49,000 had become obsolete because a competitor introduced a better product. The inventory was sold as for $9,000.
3.	Income taxes have not yet been recorded.

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		2016		2015
Sales	$	4,850,000	$	3,950,000
Cost of goods sold		2,950,000		2,090,000
Administrative expenses		890,000		765,000
Selling expenses		450,000		402,000
Interest revenue		159,000		149,000
Interest expense		218,000		218,000
Loss on sale of assets of discontinued component		86,000		—

	1/1/16-9/30/16				2015
Sales		$	490,000		$	590,000
Cost of goods sold			(335,000	)		(374,000	)
Administrative expenses			(59,000	)		(49,000	)
Selling expenses			(29,000	)		(39,000	)

Operating income before taxes		$	67,000		$	128,000

REED COMPANY
Comparative Income Statements
For the Years Ended December 31
	2016	2015
Sales Revenue($4,850,000 - $490,000);(3,950,000 -$590,000)	$4,360,000	$3,360,000
Cost of goods sold($2,950,000 - $335,000);($2,090,000 -$374,000)	-$2,615,000	-$1,716,000
Gross profit	$1,745,000	$1,644,000
Operating expenses:
Administrative expenses ($890,000 -$59,000);($765,00-$49,000)	$831,000	$716,000
Selling expenses($450,000 -$29,000);($402,000 -$39,000)	$421,000	$363,000
Loss from fire damage	$59,000
Loss from write-down of obsolete inventory($49,000 -$9,000)	$40,000
Total operating expenses	-$1,351,000	-$1,079,000
Operating income	$394,000	$565,000
Other income (expense):
Interest revenue	$159,000	$149,000
Interest expense	-$218,000	-$218,000
Total other expenses (net)	-$59,000	-$69,000
Income from continuing operations before income taxes and extraordinary item	$335,000	$496,000
Income tax expense 30%	-$100,500	-$148,800
Income from continuing operations before extraordinary item	$234,500	$347,200
Discontinued operations:
Income (loss) from operations of discontinued component (including loss on disposal of $86,000 in 2016)	-$19,000	$128,000
Income tax benefit (expense)	$5,700	-$38,400
Income (loss) on discontinued operations	-$13,300	$89,600
Income before extraordinary item	$221,200	$436,800
Loss from early extinguishment of debt (net$5700 +(-$38400)of tax benefit)	-$147,000
Net income	$74,200	$436,800

Earnings per share: assuming 700,000 shares of common stock.
Income from continuing operations before extraordinary items	$0.34	$0.5
Discontinued operations	-$0.02	$0.13
Extraordinary item	-$0.21	$0
Net income	$0.11	$0.62

Loss from fire damage 2016:
Operating income	$67,000
Loss on sale of assets	-$86,000
Loss before tax benefit	-$19,000
Tax benefit (30% x $19,000) 4,000	$5,700
Loss on discontinued operations, net of tax benefit	-$13,300