Question

Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31): Sales revenue Cost of goods sold Administrative expense Selling expense Interest revenue Interest expense Loss on sale of assets of discontinued component 2021 2020 $5,eee, eee $4,100,000 2,980,000 2,120,000 920,800 795,000 488,800 422,000 162,000 152,000 224,000 224,000 96,000 On July 1, 2021, 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, 2021, for $96.000 less than their book value. Results of operations for the component (included in the above account balances) were as follows: Sales revenue Cost of goods sold Administrative expense Selling expense Operating income before taxes 1/1/2021-9/30/2021 $ 520,000 (350,000) (62,000) (32,000) $ 76,000 2020 $ 620,000 (392,000) (52,000) (32,000) $ 144,000

Answer 1

Prepare Multistep income statement as follows:

REED COMPANY
Comparative Income Statements
	2021	2020
Sales revenue (A)	$4,480,000	$3,480,000
Cost of goods sold (B)	($2,630,000)	($1,728,000)
Gross profit   [C= A-B]	$1,850,000	$1,752,000
Operating Expenses
Administrative	$858,000	$743,000
Selling	$448,000	$390,000
Loss from fire damage	$62,000
Loss from write-down of obsolete inventory ($52,000-$5000)	$47,000
Total operating expenses (D)	$1,415,000	$1,133,000
Operating income (E = C-D)	$435,000	$619,000
Other income
Interest revenue	$162,000	$152,000
Interest expense	($224,000)	($224,000)
Total other expenses (net) (F)	($62,000)	($72,000)
Income from continuing operations before inocome taxes (G = E-F)	$373,000	$547,000
Income tax expenses [H = G × 25%]	($93,250)	($136,750)
Income from continuing operations [I = G-H]	$279,750	$410,250
Discontinued operations:
Income (loss) from operations of discontinued component ($96,000-$76000) (J)	($20,000)	$144,000
Income tax benefit (expense) [K = J × 25%]	$5,000	($36,000)
Income (loss) on discontinued operations [L = J - K]	($15,000)	$108,000
Net Income [M = I + L]	$264,750	$518,250
Earning per share
Income from continuing operations [ I/500,000 shares]	$0.56	$0.82
Discontinued operations [ L/500,000 shares]	($0.03)	$0.22
Net Income [M/500,000 shares]	$0.53	$1.04