Basic Elements of Financial Reports Comparative income statements for Grammar Inc. are as follows:

2010 2009 Sales $1,000,000 $500,000 Cost of sales 500,000 300,000 Gross profi t $ 500,000 $200,000 Operating expenses 120,000 100,000 Operating income $ 380,000 $100,000 Loss on sale of subsidiary (400,000) —

Net income (loss) $ (20,000) $100,000 Required The president and management believe that the company performed better in 2010 than it did in 2009. Write the president’s letter to be included in the 2010 annual report.

Explain why the company is fi nancially sound and why shareholders should not be alarmed by the $20,000 loss in a year when operating revenues increased signifi cantly.

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