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Homework answers / question archive / 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

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

Accounting

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 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.
Required:

Prepare a multiple-step income statement for the Reed Company for 2016, showing 2015 information in comparative format, including income taxes computed at 30% and EPS disclosures assuming 700,000 shares of common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)

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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 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  

 

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