Before finalizing its financial statements for the year, Jupiter Company decides to create a restructuring reserve of $20,000 in preparation for a downsizing to be implemented the following year. Jupiter’s income statement for the year before it created the restructuring reserve was as follows:

The company does not want to reduce operating income as a result of creating the reserve this period.

Required

a. What is the journal entry this year with regard to the creation of the restructuring reserve?

b. Restate the company’s income statement for the year, taking the creation of the restructuring reserve into account and assuming that it does not change the company’s income tax expense.

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Sales $160,000 Cost of goods sold 60,000 Gross margin 100,000 Selling and administrative expenses 40,000 Operating income 60,000 Taxation 12,000 Net income $ 48,000