Question

Please help. I've started this question and I'm stuck on calculating the rest. Thank you.

Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31):

		2021		2020
Sales revenue	$	5,250,000	$	4,350,000
Cost of goods sold		3,030,000		2,170,000
Administrative expense		970,000		845,000
Selling expense		530,000		472,000
Interest revenue		167,000		157,000
Interest expense		234,000		234,000
Loss on sale of assets of discontinued component		116,000		—

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 $116,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows:

	1/1/2021–9/30/2021						2020
Sales revenue		$	570,000				$	670,000
Cost of goods sold			(375,000	)				(422,000	)
Administrative expense			(67,000	)				(57,000	)
Selling expense			(37,000	)				(37,000	)
Operating income before taxes		$	91,000				$	154,000

In addition to the account balances above, several events occurred during 2021 that have not yet been reflected in the above accounts:

1. A fire caused $67,000 in uninsured damages to the main office building. The fire was considered to be an unusual event.
2. Inventory that had cost $57,000 had become obsolete because a competitor introduced a better product. The inventory was written down to its scrap value of $8,000.
3. Income taxes have not yet been recorded.

Required:
Prepare a multiple-step income statement for the Reed Company for 2021, showing 2020 information in comparative format, including income taxes computed at 25% and EPS disclosures assuming 800,000 shares of outstanding common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)

REED COMPANY Comparative Income Statements For the Years Ended December 31 2021 2020 $ 4,680,000 $3,680,000 2,655,000 1,748,000 2,025,000 1,932,000 Sales revenue Cost of goods sold Gross profit (loss) Operating expenses Administrative expense Selling expense Loss on building (fire damage) Loss on inventory write-down 788,000 435,000 903,000 493,000 67,000 49,000 1,512,000 513,000 1,223,000 709,000 Total operating expenses Operating income Other income (expense): Interest revenue Interest expense Total other income, net Income from continuing operations before income taxes Income tax expense 167,000 (234,000) (67,000) 446,000 111,500 157,000 (234,000) (77,000) 632,000 158,000

Answer 1

ANSWER:

Reed Company

Comparative Income Statement

For the Years Ended December 31

	2021	2022
Sales Revenue (A)	4,680,000	3,680,000
Cost of Goods Sold (B)	2,655,000	1,748,000
Gross Profit (C = A - B)	2,025,000	1,932,000
Operating Expenses
Administrative	903,000	788,000
Selling	493,000	435,000
Loss on building (fire damage)	67,000
Loss on Inventory write-down (57,000 - 8,000)	49,000
Total Operating Expenses (D)	1,512,000	1,223,000
Operating Income (E = C - D)	513,000	709,000
Other Income (Expense)
Interest Revenue	167,000	157,000
Interest Expense	(234,000)	(234,000)
Total Other Income(net) (F)	(67,000)	(77,000)
Income from continuing operations before income taxes (G = E - F)	446,000	632,000
Income Tax Expenses (H = G * 25%)	111,500	158,000
Income from Continuing Operations (I = G - H)	334,500	474,000
Discontinued operations:
Income (loss) from operations of discontinued component (116,000 - 91,000) (J)	(25,000)	154,000
Income tax benefit (expense) (K = J * 25%)	6,250	(38,500)
Income (loss) on discontinued operations (L = J - K)	(18,750)	115,500
Net Income (M = I + L))	315,750	589,500
Earning per share
Income from continuing operations (I / 800,000 shares)	0.41	0.59
Discontinued operations (L / 800,000 shares)	0.023	0.14
Net Income (M / 800,000 shares)	0.39	0.73