Lecondo Company is engaged in the manufacture and sale of fitness apparel. Sever
ID: 2331997 • Letter: L
Question
Lecondo Company is engaged in the manufacture and sale of fitness apparel. Several years ago it bought a health food business that has incurred losses since its acquisition. In 2018, the company sold the health food business. The results of operations and other activities for 2018 are summarized below.
Fitness Apparel Health foods
Net sales $17,400,000 $2,600,000
Cost of goods sold 8,100,000 1,700,000
Other operating expenses 4,700,000 1,200,000
Other:
The health food business was sold in September 2018 at a disposal loss of $500,000.
Treasury stock that had been acquired in 2017 for $130,000 was sold in 2018 for $195,000. The difference between cost and reissue price is not taxable.
During 2018, Lecondo sold 10,000 shares of its previously unissued $10 par value common stock to the public at a price of $27 per share.
Interest revenue of $2,000 was earned during 2018.
Cash dividends declared and paid during 2018 amounted to $700,000.
The fitness apparel division sold land at a $98,000 gain during 2018.
All of the foregoing amounts are before considering the effects of income taxes. The income tax rate is 40%.
Required: Calculate the following amounts that would appear on Lecondo’s income statement. Be alert for items that should not be included in the computation of net income.
Gross profit
Operating income
Income from continuing operations before taxes
Income from continuing operations
Net income
Check figures:
b. Operating income, $4,600,000
c. Income from continuing operations (before taxes), $4,700,000
d. Income from continuing operations (after taxes), $2,820,000
e. Net income, $2,340,000
Explanation / Answer
Note 1 - Calculation of Income (Or loss) from discontinued operations
Discontinued operation - Health food business
Net sales $17,400,000 Cost of Goods Sold ($8,100,000) Gross Profit $9,300,000 Other Operating Expenses ($4,700,000) Operating Income $4,600,000 Add: Non-Operating income (Or Other Income) Interest $2,000 Gain on sale of land (of fitness apparel division) $98,000 $100,000 Income from continuing operations (before taxes) $$4,700,000 Income taxes @40% [$4,700,000 x 40%] ($1,880,000) Income from continuing operations (after taxes) $2,820,000 Loss from Discontinued operations, net of Income tax benefit - (Note 1) $480,000 Net Income $2,340,000Related Questions
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