On July 1, 2018, the company adopted a plan to discontinue a division that qualifies as a component of an entityas defined by GAAP. The assets of the component were sold on September 30, 2018, for $50,000 less than theirbook value. Results of operations for the component (included in the above account balances) were as follows:1/1/2018–9/30/2018 2017Sales $400,000 $500,000Cost of goods sold (290,000) (320,000)Administrative expenses (50,000) (40,000)Selling expenses (20,000) (30,000)Operating income before taxes $ 40,000 $110,000In addition to the account balances above, several events occurred during 2018 that have not yet been reflectedin the above accounts:1. A fire caused $50,000 in uninsured damages to the main office building. The fire was considered to be aninfrequent but not unusual event.2. Inventory that had cost $40,000 had become obsolete because a competitor introduced a better product. Theinventory 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 2018, showing 2017 information in comparativeformat, including income taxes computed at 40 percent and EPS disclosures assuming 300,000 shares of common stock.
On July 1, 2018, 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, 2018, for $50,000 less than their
book value. Results of operations for the component (included in the above account balances) were as follows:
1/1/2018–9/30/2018 2017
Sales $400,000 $500,000
Cost of goods sold (290,000) (320,000)
Administrative expenses (50,000) (40,000)
Selling expenses (20,000) (30,000)
Operating income before taxes $ 40,000 $110,000
In addition to the account balances above, several events occurred during 2018 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. 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.
3. Income taxes have not yet been recorded.
Required:
Prepare a multiple-step income statement for the Reed Company for 2018, showing 2017 information in comparative
format, including income taxes computed at 40 percent and EPS disclosures assuming 300,000 shares of common stock.
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