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 300,000 shares of outstanding common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.) check_circle
How do you figure:
Income from continuing Operation and Discontinued Operation for this problem?
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 | $ | 4,400,000 | $ | 3,500,000 |
| Cost of goods sold | 2,860,000 | 2,000,000 | ||
| Administrative expense | 800,000 | 675,000 | ||
| Selling expense | 360,000 | 302,000 | ||
| Interest revenue | 150,000 | 140,000 | ||
| Interest expense | 200,000 | 200,000 | ||
| Loss on sale of assets of discontinued component | 48,000 | — | ||
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 $48,000 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 | $ | 400,000 | $ | 500,000 | |||||
| Cost of goods sold | (290,000 | ) | (320,000 | ) | |||||
| Administrative expense | (50,000 | ) | (40,000 | ) | |||||
| Selling expense | (20,000 | ) | (20,000 | ) | |||||
| Operating income before taxes | $ | 40,000 | $ | 120,000 | |||||
In addition to the account balances above, several events occurred during 2021 that have not yet been reflected in the above accounts:
- A fire caused $50,000 in uninsured damages to the main office building. The fire was considered to be an unusual event.
- Inventory that had cost $40,000 had become obsolete because a competitor introduced a better product. The inventory was written down to its scrap value of $5,000.
- 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 300,000 shares of outstanding common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)
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