Comparative income statements; multiple-step format
• LO4–1, LO4–3, LO4–4, LO4–5
Selected information about income statement accounts for the Reed Company is presented below (the company’s fiscal year ends on December 31).
2018 | 2017 | |
Sales | $4,400,000 | $3,500,000 |
Cost of goods sold | 2,860,000 | 2,000,000 |
Administrative expenses | 800,000 | 675,000 |
Selling expenses | 360,000 | 12,000 |
Interest revenue | 150,000 | 140,000 |
Interest expense | 200,000 | 200,000 |
Loss on sale of assets of discontinued component | 50,000 | — |
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:
a. 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.
b. 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.
c. 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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Chapter 4 Solutions
INTERMEDIATE ACTG+CONNECT <LOOSE>
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- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
