Question

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	$	4,900,000	$	4,000,000
Cost of goods sold		2,960,000		2,100,000
Administrative expense		900,000		775,000
Selling expense		460,000		402,000
Interest revenue		160,000		150,000
Interest expense		220,000		220,000
Loss on sale of assets of discontinued component		88,000		—

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 $88,000 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		$	500,000				$	600,000
Cost of goods sold			(340,000	)				(380,000	)
Administrative expense			(60,000	)				(50,000	)
Selling expense			(30,000	)				(30,000	)
Operating income before taxes		$	70,000				$	140,000

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 $60,000 in uninsured damages to the main office building. The fire was considered to be an unusual event.
2. Inventory that had cost $50,000 had become obsolete because a competitor introduced a better product. The inventory was written down to its scrap value of $4,000.
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 COMPANYComparative Income StatementsFor the Years Ended December 3120212020Sales revenueselected answer correct$4,400,000selected answer correct$3,400,000selected answer correctCost of goods soldselected answer correct2,620,000selected answer correct1,720,000selected answer correctGross profit (loss)1,780,0001,680,000Operating expenses:Administrative expenseselected answer correct840,000selected answer correct725,000selected answer correctSelling expenseselected answer correct430,000selected answer correct372,000selected answer correctLoss on building (fire damage)selected answer correct60,000selected answer correctnot attemptedLoss on inventory write-downselected answer correct46,000selected answer correctnot attemptednot attemptedTotal operating expenses1,376,0001,097,000Operating income404,000583,000Other income (expense):Interest revenueselected answer correct160,000selected answer correct150,000selected answer correctInterest expenseselected answer correct(220,000)selected answer correct(220,000)selected answer correctTotal other income, net(60,000)(70,000)Income from continuing operations before income taxes344,000selected answer correct513,000selected answer correctIncome tax expenseselected answer correct86,000selected answer correct128,250selected answer correctIncome from continuing operations258,000384,750Discontinued operations:Income from operations of discontinued componentselected answer correct(13,500)selected answer incorrect105,000selected answer incorrectnot attemptednot attemptednot attemptedIncome (loss) on discontinued operations(13,500)105,000Net income$244,500$489,750Earnings per share:Income from continuing operationsselected answer correct$0.32selected answer correct$0.48selected answer correctIncome on discontinued operationsselected answer correct(0.02)selected answer correct0.13selected answer correctNet income$0.31selected answer incorrect$0.61selected answer correct

1,376,000 404,000 1,097,000 583,000 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 Income from continuing operations Discontinued operations: Income from operations of discontinued component 160,000 (220,000) (60,000) 344,000 86,000 258,000 150,000 (220,000) (70,000) 513,000 128,250 384,750 (13,500) ► 105,000 (13,500) $ 244,500 105,000 $ 489,750 Income (loss) on discontinued operations Net income Earnings per share: Income from continuing operations Income on discontinued operations Net income $ $ 0.32 (0.02) 0.31 0.48 0.13 0.61 $ $

Answer 1

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		Year 2021	Year 2020
Sales revenue	Sales-Discontinued Operation sale	$             4,400,000	$             3,400,000
Less: Cost of goods sold		$           (2,620,000)	$           (1,720,000)
Gross profit		$             1,780,000	$             1,680,000
Operating expenses:
Administrative		$               (840,000)	$               (725,000)
Selling		$               (430,000)	$               (372,000)
Loss from fire damage		$                 (60,000)	$                             -
Loss from write-down of obsolete inventory	$50,000-$4,000	$                 (46,000)	$                             -
Total operating expenses		$           (1,376,000)	$           (1,097,000)
Operating income		$                 404,000	$                 583,000
Other income (expense):
Interest revenue		$                 160,000	$                 150,000
Interest expense		$               (220,000)	$               (220,000)
Total other expenses (net)		$                 (60,000)	$                 (70,000)
Income from continuing operations before Income taxes		$                 344,000	$                 513,000
Income tax expense	$                                                                              25	$                 (86,000)	$               (128,250)
Income from continuing operations		$                 258,000	$                 384,750
Discontinued operations:
Income (loss) from operations of discontinued
component (including loss on disposal of $88,000 in 2021)	$70,000-$88,000	$                 (18,000)	$                 140,000
Income tax benefit (expense)	25%	$                      4,500	$                 (35,000)
Income (loss) on discontinued operations		$                 (13,500)	$                 105,000
Net income		$                 244,500	$                 489,750
Earnings per share:
Income from continuing operations		$                        0.32	$                        0.48
Discontinued operations		$                      (0.02)	$                        0.13
Net income		$                        0.31	$                        0.61

Answer 2

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