Question

PROBLEM 3 – Income Statement (20 points)

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

		2021
Sales revenue	$	7,040,000
Cost of goods sold		4,576,000
Administrative expense		1,280,000
Selling expense		576,000
Loss due to inventory write-down		56,000
Interest revenue		240,000
Interest expense		320,000

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 $78,000 more 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
Sales revenue		$	640,000
Cost of goods sold			544,000
Administrative expense			80,000
Selling expense			32,000
Operating loss before taxes		$	(16,000	)

Income taxes have not yet been recorded.

Required

Calculate the following items as they would be reported on a multiple-step income statement for the Chatham Company for 2021, including income taxes computed at 20%. EPS disclosures are not required.

1. Gross profit
2. Operating Income
3. Income from Continuing Operations before Taxes
4. Income Tax Expense
5. Income (Loss) from Discontinued Operations
6. Net Income

Provide your answers and show your work on the following page.

PROBLEM 3, continued

1. Gross profit

2. Operating Income

3. Income from Continuing Operations before Taxes

4. Income Tax Expense

5. Income (Loss) from Discontinued Operations

6. Net Income

Answer 1

Call TUJ In come statement continued Discontinued Operations Oftratore Sales $6460,000 $ 6.40,000 O cost of goodly sold (340,32,000) ($ $249.000 Corous_fiolet $ 23,68,000_996.000 (-) Administrative exp_ ($12,00.000) 0% 20.000 El Selling expu e s: 5,44,000) $ 32,000|| Operating Incomel gestooo J aldessa j-. $ 624,000 ($14.600) (-) Non-Operating exp. : Mind Interiet exp ($ 3,20,000 l a Blous due to any comedouan ($56.0001 ft.) Non-Operating income - Inforet avenue $2,40,000 gunasale & - alset $78.000 Income from Contmwing operations Befole fax. (6) Tax @ 20% (3 97,60 dl ($124007 $3.99 4.00 $449601 Net Income

rage CUI Date I Income from Discontinued = $49,600 opcrations Total Net Income = $4,40,000 (A) If the amount of of loss on Inventore Curite down was relatively small it can be shown as part of cost do goode cold (a otherwise It can be disclosed separately In Income Statement undby non-oporceting because the loss way not occured deee to operating pooredeotes.