Question

Use the following information for the next two (2) questions: Vane Co’s trial balance of income statement accounts for the year ending December 31, 2021, included the following:

Sales 575 000
Costs of sales 240 000
Administrative expenses 70 000
Loss on sale of equipment 10 000
Sales commissions. 50 000
Interest revenue. 25 000
Freight out 15 000
Loss on early retirement of long-term debt. 20 000
Uncollectible accounts expense 15 000

Other information: Inventory, January 1, 2021 400,000,

Inventory, December 31, 2021 360,000

Vane’s income tax rate is 30%. In Vane’s 2021 multiple step income statement.

3. ) What amount should Vane report as the cost of goods manufactured?

4. ) What amount should Vane report as income after income taxes from continuing operations?

Answer 1

Cost of Goods Manufactured 200000

Cost of goods manufacture is the cost of goods brought to the completion stage ie Finished Goods . Then this Cost of Goods Manufactured is adjusted against the beginning finished goods stock and Ending Finished goods stock which give the Cost of Goods Sold

Cost of Goods Sold = Cost of Goods Manufactured + Beginning Inventory - Ending Inventory

From above formula we get

Cost of Goods Manifactured = Cost of

Goods Sold + Ending Inventory -Beginning Inventory

Cost of Goods Sold	240000
Add Ending Inventory , 31,2021	360000
Less Beginning Inventory	(400000)
Cost of Goods Manufatured	200,000

Vane report as income after income taxes from continuing operations 126000

Vane's co income statement from continuing operation , continuing operation will report all losses even losses from retirement of long term debt

	Vane Co. Income Statement
Sales		575000
Cost of Good sold	240000
Administative expenses	70000
Sales commision	50000
Freight out	15000
Uncollectible Expenses	15000	390000
Income from Operation		185000
Other Income or Expenses
Loss on sale of Equipment	(10000)
Interest Revenue	25000
Loss on early retirement of Long term debt	(20000)	(5000)
Net Income before tax from Continuing item		180000
Tax @30%		54000
Net Income from Continuing operation		126000

FASB in 2015 discontinued the accounting treatment for extraordinary items and removed the reporting requirement from U.S. GAAP in order to reduce the cost and complexity of preparing financial statements. Hence instead of excluding extraordinary item like loss on early retirement of long term debt from Net income and showing it saperately , now they included in Income of Continuing operation .