Question

Southport Company

Income Statement

For the year ended December 31, 2016

Sales                                                                2,200,000

Cost of Goods Sold                                                       1,200,000

Gross Profit                                                                            1,000,000

Selling and General Expenses                             670,000

Loss on Earthquake                                           200,000

Gain on equipment                                            (30,000)          

Interest Expense                                    20,000      860,000

Net Income before taxes                                                      140,000

Income taxes at 30%                                                            42,000

Net Income                                                                         98,000

The following information becomes available to you before the 2016 statements are issued.

1. On July 1, 2016, the decision was made to discontinue the sale of the women’s accessories.

Operating results for the segment are included in the above income statement Results for the discontinued segment were as follows:

	Jan. 1 – June 30, 2016	July 1 –Dec.31, 2016
Sales	220,000	120,000
Cost of goods sold	150,000	100,000
Selling and general expenses	120,000	50,000

2. There will continue to be some operations in the first two months of 2017. It is predicted that the operating loss will be $15,000
3. Late in 2016, equipment used by this segment with a book value of $130,000 was sold for $160,000. The gain is reflected in the above income statement. Remaining equipment used by this segment has a book value of $80,000 and it is anticipated that it will sell for a net price of $55,000.
4. You might think the earthquake loss is extraordinary, but it is no longer shown net of tax. It is just “other”
5. The inventory balance on Dec. 31, 2015 (end of prior year) was discovered to be understated by $10,000. All inventory involved pertained to continuing operations.
6. Interest expense applicable to financing of inventory of $10,000 is included in Selling and General Expenses.
7. Retained earnings on Dec. 31, 2015 was $340,000. Dividends paid during 2016 were $20,000

A. Prepare in good form, a corrected multiple step income statement for 2016 (Ignore information in part C)

B. Prepare a statement of retained earnings for December 31, 2016 (ignore information in Part C).

C. Assume during 2017 the discontinuance of the women’s accessories division was completed with the following results.

            Cash for sale of equipment with original book value of $80,000 was $59,000

            Operations; sales $20,000, cost of goods sold $17,000, expenses $15,000

Using this information prepare in good form the discontinued operations section of the 2017 Income Statement--again Southport Company

Answer 1