Question

Selected information about income statement accounts for the Reed Company is presented below the company's fiscal year ends on December 31): Sales revenue Cost of goods sold Administrative expense Selling expense Interest revenue Interest expense Loss on sale of assets of discontinued component 2021 $4,800,000 2,940,000 880,000 440,000 158,000 216,000 80,000 2020 $3,900,000 2,080,000 755,000 382,000 148,000 216,000 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 $80,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows: Sales revenue Cost of goods sold Administrative expense Selling expense Operating income before taxes 1/1/2021-9/30/2021 $ 480,000 (330,000) (58,000) (28,000) $ 64,000 2020 $ 580,000 (368,000) (48,000) (28,000) $ 136,000 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 $58,000 in uninsured damages to the main office building. The fire was considered to be an unusual event. 2. Inventory that had cost $48,000 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 500,000 shares of outstanding common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)

Answer 1

Preparation of multi-step income statement of Reed company for 2021. Refer to the below images for more detailed solution.

Requirement , Reed Company Comparative Income Statement for the years ended December 31 particulars 2020 sales 2021 Revenue cost of goods Sold () $ 4320000 (6)$3320000 Gross profit (loss) (2) $ 2610000 (7) § 17 12000 $1608000 operating 417 10000 expenses : Admin expense 222000 (2) 707000 selting expense 412000 (9) S 354000 Loss on building (five damage) $ 58000 Loss an inventory write down C48000-8000] 40000 Gotal operating expenses $1332000 P1061000 operating income $ 378000 $547000 Other income (expense): Enterest revenue $ 158000 148000 Interest expense $(216000) $(216000) Toral other income, net $(58000) $668000 Income from Continuing operations before income taxes $320000 $479000 Inconne tax expense (251) $ (80000) (119750) Income from continuing operations & 2 40000 359950 Discontinued operations : discontinued Income (loss) from operations $ 136000 $(16000) [64000-8000) . Income tax benefit (expense) $(34000) (160001251) Income (loss) on discontinued operations a (2000) $102000 Net income $ 461250 1228000 $4000 Earnings per share : $ 0.48 $(0024) continuing operations discontinued operations $0.7185 $ 0.204 Income from Income from Net income Хочь $0.9233

Worllings : (1) 8 4800 000 - $480000 (sales from discontinued operations) Y43 20000 (2) } 2940000 a $ 330000 (cost of goods sold from discontinued -42610 000 (3) $880000 - 58000 (admin expenses from discontinued =9822.000 opcychons) operations) (4) & 440000 - $ 28000 (selling expenses from discontinued operation) $ 412000 (5) Loss in 2021 Income from discontinued operations Loss on sale of Asses loss before tax benefit Tax benchit (@ 25*) Loss on disconthurd operations, net of tax benefit - $ 64000 (8000) $(16000) & 4ooo $(1 2000) (6) 83900000 - $580000 (sales from discontinued operations) = 3320000 (A) & 2080000 $ 368000 (cogs from discontined operations) - 41712000 16 & 755000 - 48000 (admin expenses from discontinued -4707000 operations) (9) & 382000 - 20000 (selling expses from discontinued operations) 354000 outstanding Eps are shares calculated based on 300 000 Eps = Income Outstanding Shares