intermediate accounting 2 questions
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Due Sunday 7/23/17 by 5pm
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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 | $ | 4,800,000 | $ | 3,900,000 |
| Cost of goods sold | 2,940,000 | 2,080,000 | ||
| Administrative expenses | 880,000 | 755,000 | ||
| Selling expenses | 440,000 | 392,000 | ||
| Interest revenue | 158,000 | 148,000 | ||
| Interest expense | 216,000 | 216,000 | ||
| Loss on sale of assets of discontinued component | 82,000 | — | ||
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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 $82,000 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 | $ | 480,000 | $ | 580,000 | |||
| Cost of goods sold | (330,000 | ) | (368,000 | ) | |||
| Administrative expenses | (58,000 | ) | (48,000 | ) | |||
| Selling expenses | (28,000 | ) | (38,000 | ) | |||
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| Operating income before taxes | $ | 64,000 | $ | 126,000 | |||
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In addition to the account balances above, several events occurred during 2016 that have not yet been reflected in the above accounts: |
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A fire caused $58,000 in uninsured damages to the main office building. The fire was considered to be an infrequent but not unusual event. |
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Inventory that had cost $48,000 had become obsolete because a competitor introduced a better product. The inventory was sold as scrap for $8,000. |
| 3. | Income taxes have not yet been recorded. |
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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. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.) 8.
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