Question

Prepare the fiscal year 2018 financial statements (Multiple-Step Income Statement, Retained Earnings Statement, and the Classified Balance Sheet.

Additional Information:

During fiscal year 2018 Midwest Mechanical sold one of their key divisions. The following information has been provided for this discontinued operation. See below.

Sold the Plastics Division on October 15, 2018
$4,000,000 Loss from operations of discountinued plastic division from January 1, 2018 through October 15, 2018.

$8,500,000 Gain from sale of the plstics division on October 15, 2018.

Note: The operating loss of $4 million and gain from the sale of 8.5 million are both pre-tax amounts. The company C.F.O. has determined that a 35% tax rate should be applied.

Midwest Mechancial Corporation Adjusted Trial Balance December 31, 2018 Credit $ Debit 3,875,000 3,150,000 $ 70,000 100,000 25,000 4,500,000 10,375,000 3,780,000 1,500,000 350,000 550,000 2,500,000 5,000,000 4,124,000 Cash Accounts Receivable Allowance for Doubtful Accounts Prepaid Insurance Short-Term Note Receivable Inventory Equipment Accumulated Deperciation - Equipment Building Accumulated Deperciation - Building Land Long-Term Investments Patent Goodwill Accounts Payable Salaries and Wages Payable Bond Payable - Long Term Mortgage Payable Common Stock Par $ 0.01 APIC Retained Earnings Dividends - Common Sales Revenue Sales Discounts Sales Returns and Allowances Cost of Goods Sold Selling Expenses Administrative Expenses Interest Income Loss Due to Storm Damage Interest Expense Income Tax Expense Discontinued Operations - Gain (see details below) 3,650,000 24,000 5,000,000 1,750,000 10,000 990,000 12,050,000 $ 500,000 35,000,000 $ $ $ 325,000 610,000 17,750,000 4,950,000 2,925,000 85,000 $ $ $ 75,000 150,000 2,700,000 $ $ 2,925,000 65,684,000 $ 65,684,000 $

Answer 1

3,40,65,000 85,000 3,41,50,000 Income statement Sales revenue less discounts, returns & allowances (35,000,000-325,000-610,000) Interest income Total revenues Less: Operating expenses Cost of goods sold Selling expenses Administrative expenses Total operating expenses Operating income Less: Non-operating expenses Loss due to storm damage Interest expense 1,77,50,000 49,50,000 29,25,000 2,56,25,000 85,25,000 75,000 1,50,000 2,25,000 83,00,000 27,00,000 56,00,000 Income from continuing operations before tax Less: Income tax expense Income from continuing operations Discontinued operations: Loss from operations of discontinued plastic division from January 1 to Oct.15,2018 Gain from sale of the plastic division on October 15, 2018 Gain on discontinued operations before tax Less: Income tax expense on gain from discontinued operations Income from discontinued operations Net income -40,00,000 85,00,000 45,00,000 -15,75,000 29,25,000 85,25,000 CS Scanned with CamScanner

Balance sheet Assets Current assets Cash Inventory Prepaid insurance Short-term note receivable Accounts receivable Less: Allowance for doubtful accounts 38,75,000 45,00,000 1,00,000 25,000 31,50,000 -70,000 30,80,000 1,15,80,000 Total current assets Non-current assets Tangible assets Land 5,50,000 Building Less: Accumulated depreciation-building WDV of building 15,00,000 -3,50,000 11,50,000 Equipment Less: Accumulated depreciation equipment WDV of equipment 1,03,75,000 -37,80,000 65,95,000 Total tangible assets (550,000+1,150,000+6,595,000) CS Scanned with CamScanner 82.95.000

82,95,000 Total tangible assets (550,000+1,150,00046,595,000) Intangible assets Patent Goodwill Total intangible assets Long-term investments Total non-current assets 50,00,000 41,24,000 91,24,000 25,00,000 1,99,19,000 3,14,99,000 36,50,000 24,000 36,74,000 TOTAL ASSETS Liabilities Current liabilities Accounts payable Salaries and wages payable Total current liabilities Non-current liabilities Bond payable-Long term Mortgage payable Total non-current liabilities Total liabilities Shareholders' equity Common stock APIC Retained earnings (See statement of retained earnings) Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 50,00,000 17,50,000 67,50,000 1,04,24,000 10,000 9,90,000 2,00,75,000 2,10,75,000 3,14,99,000 CS Scanned with CamScanner

Retained earnings' statement Opening balance Add: Net income Less: Dividends Closing balance 1,20,50,000 85,25,000 -5,00,000 2,00,75,000 CS Scanned with CamScanner