Problem - Comparative income statements; multiple-step format
Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31):
|
2016
|
2015
|
|
Sales
|
$ 5.100,000
|
$ 4.200,000
|
|
Cost of goods sold
|
3.000,000
|
2,140,000
|
|
Administrative expenses
|
940,000
|
815,000
|
|
Selling expenses
|
500,000
|
452,000
|
|
Interest revenue
|
164,000
|
154,000
|
|
Interest expense
|
228,000
|
228,000
|
|
Loss on sale of assets of discontinued component
|
106,000
|
-
|
On July 1, 2016, 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, 2016. for $106,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows:
|
1/1/16-9/30/16
|
2015
|
|
Sales
|
$ 540,000
|
$640,000
|
|
Cost of goods sold
|
(360,000)
|
(404,000)
|
|
Administrative expenses
|
(64,000)
|
(54,000)
|
|
Selling expenses
|
(34,000)
|
(44,000)
|
|
Operating income before taxes
|
$ 82,000
|
$138,000
|
In addition to the account balances above, several events occurred during 2016 that have not yet been reflected in the above accounts:
1. A fire caused $64,000 in uninsured damages to the main office building. The fire was considered to be an infrequent but not unusual event.
2. Inventory that had cost $54,000 had become obsolete because a competitor introduced a better product. The inventory was sold as scrap for $5,000.
3. Income taxes have not yet been recorded.
Required: Prepare a multiple-step income statement for the Reed Company for 2016, showing 2015 information in comparative format, including income taxes computed at 40% and EPS disclosures assuming 500,000 shares of common stock.