Problem 4-1 Comparative income statements; multiple-step format [LO4-1, 4-3,4-4,

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Problem 4-1 Comparative income statements; multiple-step format [LO4-1, 4-3,4-4, 4-5] 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 Cost of goods sold Administrative expenses Selling expenses Interest revenue Interest expense Loss on sale of assets of discontinued component $5,350,000 $ 4,450,000 3,050,000 2,190,000 865,000 990,000 550,000 502,000 169,000 238,000 238,000 126,000 159,000 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 $126,000 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 Cost of goods sold Administrative expenses Selling expenses $ 590,000 $ 690,000 (385,000) (434,000) (69,000) (59,000) (39,000) (49,000) Operating income before taxes $ 97,000 $ 148,000 In addition to the account balances above, several events occurred during 2016 that have not yet been reflected in the above accounts 1. A fire caused $69,000 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 $59,000 had become obsolete because a competitor introduced a better product. The inventory was sold as scrap for $6,000

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Working Working 2016 2015 2016 2015 Sales Revenue 4760000 3760000 5350000-590000 4450000-690000 Cost of goods sold 2665000 1756000 3050000-385000 2190000-434000 Gross Profit 2095000 2004000 Operating Expenses: Administrative 921000 806000 990000-69000 865000-59000 Selling 511000 453000 550000-39000 502000-49000 Loss From Fire 69000 Loss from write down of inventory 53000 59000-6000 Total Operating Expense 1554000 1259000 Operating Income 541000 745000 Other Income (expense) Interest Revenue 169000 159000 Interest Expense -238000 -238000 Totall Other Expense Net -69000 -79000 Income From Continuiing Operations Before tax 610000 824000 Income Tax Exp 183000 247200 Income From Continuiing Operations 427000 576800 Discontinued Operations: Income or (Loss)from Discontinued operations -29000 148000 97000 Income-126000 Loss=29000 Income Tax Benefit (Expense) 8700 -44400 Income or (Loss)on Discontinued operations after tax -20300 103600 Net Income 406700 680400 Earning Per Share Income from continuing operations 0.61 0.824 427000/700000 576800/700000 Discontinued operation -0.029 0.148 -20300/700000 103600/700000 Net Income 0.581 0.972

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