Income Statement and Segment Reporting The following accounts are taken from the December 31, 2016 adjusted trial balance of the Reed Company: Cost of goods sold $121,120 Loss due to flood (pretax) $ 8,000 Interest expense 4,880 Sales (net) 200,000 Depreciation expense 7,000 Administrative expenses 16,000 Selling expenses 26,000 Interest revenue 1,000 Additional information: 1. Reed had 5,000 shares of common stock outstanding the entire year 2. The income tax rate is 30% on all items. 3. Reed operates several divisions, two of which, Divisions 1 and 2, are reportable operating segments. 4. No intersegment sales are made by any division. Of the total sales (net), Division 1 made 49%; Division 2, 30%; and the remaining segments, 21% 5. Cost of goods sold as a percentage of net sales in each division was: Division 1, 62%; Division 2, 60%; other segments, 58%. 6. Selling expenses consist of sales salaries, sales commissions, delivery costs, advertising, and miscellaneous expenses. These are traceable to the segments as follows: a. Sales salaries ($6,000): $3,000 to Division 1, $2,000 to Division 2, and $1,000 to the remaining segments. b. Sales commissions ($4,000): 2% of net sales in all segments. c. Delivery costs ($5,000): 60% to Division 1, 30% to Division 2, and 10% to the remaining segments. d. Advertising ($10,500): Of the total, $1,200 was spent on general advertising. The remainder was spent as follows: $4,600 in Division 1, $3,200 in Division 2, and $1,500 in the other segments. e. The miscellaneous selling expenses of $500 are considered common costs and are not allocated to any segments. 7. Administrative expenses consist of bad debts, administrative salaries, property taxes, and miscellaneous expenses. These are allocable to the segments as follows: a. Bad debts ($2,000): 1% of net sales in all segments. b. Administrative salaries ($10,000): Of the total, $2,100 are considered general corporate salaries. The remainder is allocated $3,800 to Division 1, $2,500 to Division 2, and $1,600 to the other segments. c. Property taxes ($3,000): Of the total, $1,600 are general corporate expenses. Of the remainder, 40% is allocable to Division 1,35% to Division 2, and 25% to the remaining segments. d. The miscellaneous administrative expenses of $1,000 are considered common costs and are not allocated to any segments. 8. Depreciation expense is listed as a separate item on the income statement. Of the total, 51,400 is a general corporate expense. Of the remainder, 40% is allocable to Division 1. 30% to Division 2 and 30% to the remaining segments. 9. Interest revenue is from corporate investments in marketable securities. Interest expense is related to corporate bonds used to finance general operating activities 10. A flood causing the material pretax loss occurred in Division 1. 11. of the $300,000 total assets on December 31, 2016, 45% are assets of Division 1, 29% are assets of Division 2 18% are assets of the remaining segments, and 8% are assets related to corporate headquarters 12. Capital expenditures amounted to $25,000 in Division 1 and $6,000 in Division 2 during 2016 and are included in the total assets on December 31, 2016. Required 1. Prepare a 2016 multiple-step income statement for the Reed. Round earnings per share computation to two decimal places. REED COMPANY Income Statement For Year Ended December 31, 2016 Sales revenues (net) 200,000 Cost of goods sold - 121,120 Gross profit 78,880 Operating Expenses Selling expenses 26,000 | Administrative expenses 16.000 Depreciation expense 7,000 Total operating expenses 49,000 29,880 Operating Income Other Items Interest revenue 1,000 Interest expense X -4,880 X Interest expense -3,880 X $ -26,000 X Pretax income before extraordinary item 34,000 X Extraordinary loss due to flood (net) x -21,400 x Net income 12,600 Earnings per share Net income 2.52 2. Prepare a separate schedule that discloses the revenues, profit, and assets of Divisions 1 and 2, and the remaining operating segments. REED COMPANY Industry Segment Financial Results For Year Ended December 31, 2016 Reportable Reportable All Operating Operating Other Total Segment i Segment 2 Segments Results Segment revenues (sales) 98.000 60,000 42,000 $ 200,000 Segment profit (pretax) 17,100 10,830 $ 9.750 37,680 General corporate expenses -7.800 Interest revenue 1,000 Loss on flood 8,000 Interest expense -4,880 Pretax income before extraordinary loss 234,000 X Identifiable assets at December 31, 2016 135,000 $ 87,000 54,000 276.000 General corporate assets 24,000 Total assets at December 31, 2016 300,000 Feedback 3. Compute the profit margin before income taxes and pretax return on identifiable assets for Divisions 1 and 2, and for the other division Enter percentage as whole number and two decimal places. (eg, 1637522 is entered as 16.38). Profit margin Pretax return before income taxes on identifiable assets Division 1: 12.7 X Division 2: 12.4 X Other Divisions: 18.1 X Income Statement and Segment Reporting The following accounts are taken from the December 31, 2016 adjusted trial balance of the Reed Company: Cost of goods sold $121,120 Loss due to flood (pretax) $ 8,000 Interest expense 4,880 Sales (net) 200,000 Depreciation expense 7,000 Administrative expenses 16,000 Selling expenses 26,000 Interest revenue 1,000 Additional information: 1. Reed had 5,000 shares of common stock outstanding the entire year 2. The income tax rate is 30% on all items. 3. Reed operates several divisions, two of which, Divisions 1 and 2, are reportable operating segments. 4. No intersegment sales are made by any division. Of the total sales (net), Division 1 made 49%; Division 2, 30%; and the remaining segments, 21% 5. Cost of goods sold as a percentage of net sales in each division was: Division 1, 62%; Division 2, 60%; other segments, 58%. 6. Selling expenses consist of sales salaries, sales commissions, delivery costs, advertising, and miscellaneous expenses. These are traceable to the segments as follows: a. Sales salaries ($6,000): $3,000 to Division 1, $2,000 to Division 2, and $1,000 to the remaining segments. b. Sales commissions ($4,000): 2% of net sales in all segments. c. Delivery costs ($5,000): 60% to Division 1, 30% to Division 2, and 10% to the remaining segments. d. Advertising ($10,500): Of the total, $1,200 was spent on general advertising. The remainder was spent as follows: $4,600 in Division 1, $3,200 in Division 2, and $1,500 in the other segments. e. The miscellaneous selling expenses of $500 are considered common costs and are not allocated to any segments. 7. Administrative expenses consist of bad debts, administrative salaries, property taxes, and miscellaneous expenses. These are allocable to the segments as follows: a. Bad debts ($2,000): 1% of net sales in all segments. b. Administrative salaries ($10,000): Of the total, $2,100 are considered general corporate salaries. The remainder is allocated $3,800 to Division 1, $2,500 to Division 2, and $1,600 to the other segments. c. Property taxes ($3,000): Of the total, $1,600 are general corporate expenses. Of the remainder, 40% is allocable to Division 1,35% to Division 2, and 25% to the remaining segments. d. The miscellaneous administrative expenses of $1,000 are considered common costs and are not allocated to any segments. 8. Depreciation expense is listed as a separate item on the income statement. Of the total, 51,400 is a general corporate expense. Of the remainder, 40% is allocable to Division 1. 30% to Division 2 and 30% to the remaining segments. 9. Interest revenue is from corporate investments in marketable securities. Interest expense is related to corporate bonds used to finance general operating activities 10. A flood causing the material pretax loss occurred in Division 1. 11. of the $300,000 total assets on December 31, 2016, 45% are assets of Division 1, 29% are assets of Division 2 18% are assets of the remaining segments, and 8% are assets related to corporate headquarters 12. Capital expenditures amounted to $25,000 in Division 1 and $6,000 in Division 2 during 2016 and are included in the total assets on December 31, 2016. Required 1. Prepare a 2016 multiple-step income statement for the Reed. Round earnings per share computation to two decimal places. REED COMPANY Income Statement For Year Ended December 31, 2016 Sales revenues (net) 200,000 Cost of goods sold - 121,120 Gross profit 78,880 Operating Expenses Selling expenses 26,000 | Administrative expenses 16.000 Depreciation expense 7,000 Total operating expenses 49,000 29,880 Operating Income Other Items Interest revenue 1,000 Interest expense X -4,880 X Interest expense -3,880 X $ -26,000 X Pretax income before extraordinary item 34,000 X Extraordinary loss due to flood (net) x -21,400 x Net income 12,600 Earnings per share Net income 2.52 2. Prepare a separate schedule that discloses the revenues, profit, and assets of Divisions 1 and 2, and the remaining operating segments. REED COMPANY Industry Segment Financial Results For Year Ended December 31, 2016 Reportable Reportable All Operating Operating Other Total Segment i Segment 2 Segments Results Segment revenues (sales) 98.000 60,000 42,000 $ 200,000 Segment profit (pretax) 17,100 10,830 $ 9.750 37,680 General corporate expenses -7.800 Interest revenue 1,000 Loss on flood 8,000 Interest expense -4,880 Pretax income before extraordinary loss 234,000 X Identifiable assets at December 31, 2016 135,000 $ 87,000 54,000 276.000 General corporate assets 24,000 Total assets at December 31, 2016 300,000 Feedback 3. Compute the profit margin before income taxes and pretax return on identifiable assets for Divisions 1 and 2, and for the other division Enter percentage as whole number and two decimal places. (eg, 1637522 is entered as 16.38). Profit margin Pretax return before income taxes on identifiable assets Division 1: 12.7 X Division 2: 12.4 X Other Divisions: 18.1 X