Question

In 2016, Kim Company sold land for $114,000 cash. The land had originally cost $45,000. Also, Kim sold inventory that had cost $195,000 for $285,000 cash. Operating expenses amounted to $36,000.

a. Prepare a 2016 multistep income statement for Kim Company.

b. Assume that normal operating activities grow evenly by 22% during 2017. Prepare a 2017 multistep income statement for Kim Company.

c. Determine the percentage change in net income between 2016 and 2017. (Round your answer to one decimal place.)

d. Should the stockholders have expected the results determined in Requirement c? yes or no

Answer 1

Solution-a

KIM Company
Income Statement
For the year ended December 31, 2016
Sales revenue	$285,000
Less: Cost of goods sold	$195,000
Gross margin	$90,000
Expense
Less: Operating expenses	$36,000
Operating Income	$54,000
Non-Operating Items
Add: Gain on sale of land ($114,000 - $45,000)	$69,000
Net Income	$123,000

Solution-b

KIM Company
Income Statement
For the year ended December 31, 2016
Sales revenue ($285,000*122%)	$347,700
Less: Cost of goods sold ($195,000*122%)	$237,900
Gross margin	$109,800
Expense
Less: Operating expenses ($36,000*122%)	$43,920
Operating Income	$65,880
Add: Non-Operating Items	$0
Net Income	$65,880

Solution-c

Net Income Decreased = 100% - ($65,880/$123,000)

Net Income Decreased = 46.4%

Solution-d

No