Question

The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2021 ($ in thousands): sales revenue, $18,500; cost of goods sold, $7,800; selling expenses, $1,460; general and administrative expenses, $900; interest revenue, $100; interest expense, $260. Income taxes have not yet been recorded. The company’s income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in thousands). All transactions are material in amount.

1. Investments were sold during the year at a loss of $380. Schembri also had an unrealized gain of $480 for the year on investments in debt securities that qualify as components of comprehensive income.

2. One of the company’s factories was closed during the year. Restructuring costs incurred were $1,900.

3. During the year, Schembri completed the sale of one of its operating divisions that qualifies as a component of the entity according to GAAP. The division had incurred a loss from operations of $700 in 2021 prior to the sale, and its assets were sold at a gain of $1,720.

4. In 2021, the company’s accountant discovered that depreciation expense in 2020 for the office building was understated by $360.

5. Negative foreign currency translation adjustment for the year totaled $400.

Required:
1. Prepare Schembri’s single, continuous multiple-step statement of comprehensive income for 2021, including earnings per share disclosures. One million shares of common stock were outstanding at the beginning of the year and an additional 400,000 shares were issued on July 1, 2021.

SCHEMBRI MANUFACTURING CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2021
($ in 000s)
Sales revenue
Cost of goods sold
Gross profit
Operating expenses:
Selling expenses
General and administrative expenses
Restructuring costs
Total operating expenses		0
Operating income
Other income (expense):
Interest expense
Loss on sale of investments
Interest revenue
Other income, net		0
Income from continuing operations before income taxes		0
Income tax expense
Income from continuing operations		0
Discontinued operations:
Income from operations of discontinued component
Income on discontinued operations		0
Net income		0
Other comprehensive income, net of tax:
		0
Comprehensive income		$0
Earnings per share:
Income from continuing operations
Income on discontinued operations
Net income

Answer 1

1.

SCHEMBRI MANUFACTURING CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2021
($ in 000s)
Sales revenue		$18,500
Cost of goods sold		($7,800)
Gross profit		$10,700
Operating expenses:
Selling expenses	($1,460)
General and administrative expenses	($900)
Restructuring costs	($1,900)
Total operating expenses		($4,260)
Operating income		$6,440
Other income (expense):
Interest expense	($260)
Loss on sale of investments	($380)
Interest revenue	$100
Other income, net		($540)
Income from continuing operations before income taxes		$5,900
Income tax expense ($5900 × 25%)		($1,475)
Income from continuing operations before extraordinary items		$4,425
Discontinued operations:
Income from operations of discontinued component ($1720 - $700)	$1,020
Income tax expense ($1020 × 25%)	($255)
Income on discontinued operations		$765
Net income		$5,190
Other comprehensive income, net of tax:
Unrealized gains from investments ($480 - 25% of $480)	$360
Loss from foreign currency translation ($400 - 25% of $400)	($300)	$60
Comprehensive Income		$5,250