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Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal...

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Accounting

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

20212020
Sales revenue$5,250,000$4,350,000
Cost of goods sold3,030,0002,170,000
Administrative expense970,000845,000
Selling expense530,000472,000
Interest revenue167,000157,000
Interest expense234,000234,000
Loss on sale of assets of discontinued component116,000—


On July 1, 2021, the company adopted a plan to discontinue adivision that qualifies as a component of an entity as defined byGAAP. The assets of the component were sold on September 30, 2021,for $116,000 less than their book value. Results of operations forthe component (included in the above account balances)were as follows:

1/1/2021–9/30/20212020
Sales revenue$570,000$670,000
Cost of goods sold(375,000)(422,000)
Administrative expense(67,000)(57,000)
Selling expense(37,000)(37,000)
Operating income before taxes$91,000$154,000


In addition to the account balances above, several events occurredduring 2021 that have not yet been reflected in the aboveaccounts:

  1. A fire caused $67,000 in uninsured damages to the main officebuilding. The fire was considered to be an unusual event.
  2. Inventory that had cost $57,000 had become obsolete because acompetitor introduced a better product. The inventory was writtendown 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 for2021, showing 2020 information in comparative format, includingincome taxes computed at 25% and EPS disclosures assuming 800,000shares of outstanding common stock. (Amounts to be deductedshould be indicated with a minus sign. Round EPS answers to 2decimal places.)

Answer & Explanation Solved by verified expert
4.1 Ratings (609 Votes)

Comparative income statement
2021 2020
Sales revenue 4680000 3680000
(5250000-570000) (4350000-670000)
Less: Cost of goods sold 2655000 1748000
(3030000-375000) (2170000-422000)
Gross profit A 2025000 1932000
Less: Operating expenses
Administrative expenses 903000 788000
(970000-67000) (845000-57000)
Selling expenses 493000 435000
(530000-37000) (472000-37000)
Loss from fire damage 67000
Loss from write-down of obsolete inventory 49000
(57000-8000)
Total operating expenses B 1512000 1223000
Operating income C=A-B 513000 709000
Other income (expense):
Interest revenue 167000 157000
Interest expense -234000 -234000
Total other expenses (net) D -67000 -77000
Income from continuing operations before tax E=C+D 446000 632000
Income tax (at 25%) F=E*0.25 111500 158000
Income from continuing operations A 334500 474000
Discontinued operations:
Income (loss) from operations of discontinued component B -25000 154000
Income tax benefit (at 25%) C 6250 -38500
(122000*25%)
Income (loss) on discontinued operations D=B+C -18750 115500
Net income E=A+D 315750 589500
Earnings per share:
Income from continuing operations 0.42 0.59
(334500/800000) (474000/800000)
Income (loss) from operations of discontinued component -0.02 0.14
(-18750/800000) (115500/800000)
Net income 0.39 0.74
(315750/800000) (589500/800000)
Note:1- Income (loss) from discontinued componenet
2021 2020
Sales 570000 670000
Less: Expenses
Cost of goods sold 375000 422000
Administrative expenses 67000 57000
Selling expenses 37000 37000
Loss on sale of assets of discontinued component 116000
Total expenses 595000 516000
Income (loss) from discontinued operations before tax -25000 154000

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Transcribed Image Text

Selected information about income statement accounts for theReed Company is presented below (the company's fiscal year ends onDecember 31):20212020Sales revenue$5,250,000$4,350,000Cost of goods sold3,030,0002,170,000Administrative expense970,000845,000Selling expense530,000472,000Interest revenue167,000157,000Interest expense234,000234,000Loss on sale of assets of discontinued component116,000—On July 1, 2021, the company adopted a plan to discontinue adivision that qualifies as a component of an entity as defined byGAAP. The assets of the component were sold on September 30, 2021,for $116,000 less than their book value. Results of operations forthe component (included in the above account balances)were as follows:1/1/2021–9/30/20212020Sales revenue$570,000$670,000Cost of goods sold(375,000)(422,000)Administrative expense(67,000)(57,000)Selling expense(37,000)(37,000)Operating income before taxes$91,000$154,000In addition to the account balances above, several events occurredduring 2021 that have not yet been reflected in the aboveaccounts:A fire caused $67,000 in uninsured damages to the main officebuilding. The fire was considered to be an unusual event.Inventory that had cost $57,000 had become obsolete because acompetitor introduced a better product. The inventory was writtendown to its scrap value of $8,000.Income taxes have not yet been recorded.Required:Prepare a multiple-step income statement for the Reed Company for2021, showing 2020 information in comparative format, includingincome taxes computed at 25% and EPS disclosures assuming 800,000shares of outstanding common stock. (Amounts to be deductedshould be indicated with a minus sign. Round EPS answers to 2decimal places.)

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