Question:
Selected information about income statement accounts for the Reed Company is presented below (the
company’s fiscal year ends on December 31):
On July 1, 2013, 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, 2013, for $50,000
less than their book value. Results of operations for the component ( included in the above account
balances) were as follows:
In addition to the account balances above, several events occurred during 2013 that have not yet been
reflected in the above accounts:
1. A fire caused $50,000 in uninsured damages to the main office building. The fire was considered to be
an infrequent but not unusual event.
2. An earthquake caused $100,000 in property damage to one of Reed’s factories. The amount of the loss
is material and the event is considered unusual and infrequent.
3. Inventory that had cost $40,000 had become obsolete because a competitor introduced a better product.
The inventory was sold as scrap for $5,000.
4. Income taxes have not yet been accrued.
Required:
, Prepare a multiple-step income statement for the Reed Company for 2013, showing 2012 information in
comparative format, including income taxes computed at 40% and EPS disclosures assuming 300,000
shares of common stock.
Answer:
REED COMPANY
Comparative Income Statements
For the Years Ended December 31
2013 2012
Sales revenue $4,000,000
[6] $3,000,000
.....................................................................................
[1]
Cost of goods sold 2,570,000
[7] 1,680,000
.....................................................................................
[2]
Gross profit ................................................................. 1,430,000 1,320,000
Operating expenses:
Administrative 750,000[8] 635,000
....................................................................................
[3]
Selected information about income statement accounts for the Reed Company is presented below (the
company’s fiscal year ends on December 31):
On July 1, 2013, 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, 2013, for $50,000
less than their book value. Results of operations for the component ( included in the above account
balances) were as follows:
In addition to the account balances above, several events occurred during 2013 that have not yet been
reflected in the above accounts:
1. A fire caused $50,000 in uninsured damages to the main office building. The fire was considered to be
an infrequent but not unusual event.
2. An earthquake caused $100,000 in property damage to one of Reed’s factories. The amount of the loss
is material and the event is considered unusual and infrequent.
3. Inventory that had cost $40,000 had become obsolete because a competitor introduced a better product.
The inventory was sold as scrap for $5,000.
4. Income taxes have not yet been accrued.
Required:
, Prepare a multiple-step income statement for the Reed Company for 2013, showing 2012 information in
comparative format, including income taxes computed at 40% and EPS disclosures assuming 300,000
shares of common stock.
Answer:
REED COMPANY
Comparative Income Statements
For the Years Ended December 31
2013 2012
Sales revenue $4,000,000
[6] $3,000,000
.....................................................................................
[1]
Cost of goods sold 2,570,000
[7] 1,680,000
.....................................................................................
[2]
Gross profit ................................................................. 1,430,000 1,320,000
Operating expenses:
Administrative 750,000[8] 635,000
....................................................................................
[3]
