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, $18,700; cost of goods sold, $7,900; selling expenses, $1,470; general and administrative expenses, $970; interest revenue, $250; interest expense, $300. Income taxes have not yet been recorded. The company’s income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in thousands). All transactions are material in amount.

1. Investments were sold during the year at a loss of $390. Schembri also had an unrealized gain of $500 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 $2,000.
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 $720 in 2021 prior to the sale, and its assets were sold at a gain of $1,740.
4. In 2021, the company’s accountant discovered that depreciation expense in 2020 for the office building was understated by $370.
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.
2. Prepare a separate statement of comprehensive income for 2021.
  

Answer 1

Answer:

1.

SCHEMBRI MANUFACTURING CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2021
($ in 000s)
Sales revenue ..................................................................		$18,700
Cost of goods sold .........................................................		7,900
Gross profit .....................................................................		10,800
Operating expenses:
Selling expense ............................................................	$1,470
General and administrative expense ............................	970
Restructuring costs ......................................................	2,000
Total operating expenses ........................................		4,440
Operating income ...........................................................		6,360
Other income (expense):
Loss on sales of investments .......................................	(390)
Interest expense ...........................................................	(300)
Interest revenue ...........................................................	250
Other income, net .....................................................		(440)
Income from continuing operations before income taxes		5,920
Income tax expense (@ 25% )........................................................		1,480
Income from continuing operations ...............................		4,440
Discontinued operations:
Income from operations of discontinued component
(including gain on disposal of $1,740) ......................	1020
Income tax expense @ 25%.....................................................	(255)
Income on discontinued operations ................................		765
Net income .....................................................................		5,205
Other comprehensive income, net of tax:
Gain on debt securities ( $500 less 25% ) ..............................................................	375
Foreign currency translation adjustment ( $400 less 25% ) ....................	(300)
Total other comprehensive income .........................		75
Comprehensive income .................................................		$ 5,280
Earnings per share:*
Income from continuing operations ($4,440,000 / 1,200,000 )	$3.70
Discontinued operations ( $765,000 / 1,200,000 )	0.64
Net income	$4.34
*Weighted-average shares = 1,000,000 + (400,000÷2) = 1,200,000

2.

SCHEMBRI MANUFACTURING CORPORATION
Statement of Comprehensive Income
For the Year Ended December 31, 2021 ($ in 000s)
Net income .......................................................................		$5,205
Other comprehensive income, net of tax:
Gain on debt securities....................................................	$375
Foreign currency translation adjustment ........................	(300)
Total other comprehensive income .............................		75
Comprehensive income ....................................................		$5,280