Net sales Cost of Goods sold Gross profit GP% $ 34,365,000 $ 20,950,000 $ 13,415,000 39% Background: You have recently been hired as the new staff accountant at Midwest Mechanical Cor- poration. Midwest Mechanical Corporation is a $35 million (annual sales) company. The company machines parts for small outboard (boat) motors. The accounting department consists of the control- ler, staff accountant (you), and a parts manager (responsible for inventory accounting). Midwest Mechanical Corporation has organized their business into three main divisions aligning with the three main sections of the outboard motor. $Millions 2019 2018 $Sales %GM Selling and Administrative Selling expense Administrative Expenses Income from operations $ $ 4,950,000 2,925,000 $ 7,875,000 $ 5,540,000 2020 Division Power Division %GM 24.10% $Sales $ 13.50 %GM 26.10% 29.10% $ $ 85,000 1,700,000 $ 1,785,000 29.20% $ 12.10 28.80% 27.50% Other Revenues & Gains Interest income Gain on sale of equipment Other expenses % loss Loss due to storm damage Interest expense Midsection Division Lower Unit Division $ Sales $ 11.20 $ 12.90 $ 10.10 0.80 $ 35.00 75,000 44.50% 42.80% 43.60% $ 14.10 $ 12.20 $ 6.60 $ 0.60 $ 33.50 $ 8.40 $ $ 150,000 $ (225,000) Other Not Available $ 0.70 $ 34.70 Not available Not available Income before income tax income tax expense net income $ 7,100,000 $ 2,485,000 $ 4,615,000 0.35 Total EPS $ 4.62 The supporting trial balance: Midwest Mechanical Corporation Adjusted Trial Balance December 31, 2021 Debit Credit Cash $ 4,665,000 Current Events - In February 2021, Midwest Mechanical Corporation announced to their customers that they will no longer service/machine the powerhead portion of outboard motors as of June 30, 2021. In the announcement, Midwest Mechanical was careful to remind customers the work they will continue (detailing to the customers the specific types of machining jobs completed for the mid- section and lower unit). On June 30, 2021, Midwest Mechanical Corporation sold specific equipment only used to machine powerhead parts. Specifically, they sold equipment that had a cost of $2.5 million and accumulated depreciation of $2.2 million. The equipment was sold for $2 million dollars. For the first six months of 2021, Midwest Mechanical Corporation's Powerhead Division had sales of $4.8 million and COGS of $3.7 million. The Fiscal Year Ending December 31, 2021 income statement is presented below. Midwest Mechanical Corporation Income statement For the year Ended December 31 2021 Sale revenue $ 35,300,000 Sales discount $ 35,800 Sales Returns and allowance $ 610,000 Accounts Receivable 4,800,000 Allowance for Doubtful Accounts $ 150,000 Prepaid Insurance 100,000 Short-Term Note Receivable 100,000 Inventory 9,500,000 Equipment Loss Due to Storm Damage 11,500,000 Accumulated Depreciation - Equipment Interest Expense $ 75,000 $ 150,000 $ 2,485,000 4,400,000 Building Income Tax Expense 1,500,000 Accumulated Depreciation - Building Gain on Sale of Equipment (Powerhead Division) 800,000 $ 1,700,000 $ 67,985,000 Land 250,000 Long-Term Investments 1,100,000 $ 67,985,000 Situation: The controller has requested that you prepare a correct version of the income statement. The income statement on page 2 was automatically generated by the company's SAP accounting sys- tem. The problem is that the system did not properly account for the Discontinued Operations," which of course is the Powerhead Division. Patent 1,000,000 Goodwill 500,000 Accounts Payable 4,650,000 Prepare the income statement correctly breaking out the impact of discontinued operations. Note: A 35% tax rate is applied to both continuing and discontinued income. Salaries and Wages Payable 150,000 Bond Payable - Long Term 5,000,000 End of document Mortgage Payable 1,100,000 Common Stock Par $ 0.01 10,000 APIC 990,000 Retained Earnings 13,650,000 Dividends - Common $ 500,000 Sales Revenue 35,300,000 Sales Discounts 325,000 Sales Returns and Allowances Cost of Goods Sold Selling Expenses 610,000 $ 20,950,000 $ 4,950,000 $ 2,925,000 Administrative Expenses Interest Income 85,000 Net sales Cost of Goods sold Gross profit GP% $ 34,365,000 $ 20,950,000 $ 13,415,000 39% Background: You have recently been hired as the new staff accountant at Midwest Mechanical Cor- poration. Midwest Mechanical Corporation is a $35 million (annual sales) company. The company machines parts for small outboard (boat) motors. The accounting department consists of the control- ler, staff accountant (you), and a parts manager (responsible for inventory accounting). Midwest Mechanical Corporation has organized their business into three main divisions aligning with the three main sections of the outboard motor. $Millions 2019 2018 $Sales %GM Selling and Administrative Selling expense Administrative Expenses Income from operations $ $ 4,950,000 2,925,000 $ 7,875,000 $ 5,540,000 2020 Division Power Division %GM 24.10% $Sales $ 13.50 %GM 26.10% 29.10% $ $ 85,000 1,700,000 $ 1,785,000 29.20% $ 12.10 28.80% 27.50% Other Revenues & Gains Interest income Gain on sale of equipment Other expenses % loss Loss due to storm damage Interest expense Midsection Division Lower Unit Division $ Sales $ 11.20 $ 12.90 $ 10.10 0.80 $ 35.00 75,000 44.50% 42.80% 43.60% $ 14.10 $ 12.20 $ 6.60 $ 0.60 $ 33.50 $ 8.40 $ $ 150,000 $ (225,000) Other Not Available $ 0.70 $ 34.70 Not available Not available Income before income tax income tax expense net income $ 7,100,000 $ 2,485,000 $ 4,615,000 0.35 Total EPS $ 4.62 The supporting trial balance: Midwest Mechanical Corporation Adjusted Trial Balance December 31, 2021 Debit Credit Cash $ 4,665,000 Current Events - In February 2021, Midwest Mechanical Corporation announced to their customers that they will no longer service/machine the powerhead portion of outboard motors as of June 30, 2021. In the announcement, Midwest Mechanical was careful to remind customers the work they will continue (detailing to the customers the specific types of machining jobs completed for the mid- section and lower unit). On June 30, 2021, Midwest Mechanical Corporation sold specific equipment only used to machine powerhead parts. Specifically, they sold equipment that had a cost of $2.5 million and accumulated depreciation of $2.2 million. The equipment was sold for $2 million dollars. For the first six months of 2021, Midwest Mechanical Corporation's Powerhead Division had sales of $4.8 million and COGS of $3.7 million. The Fiscal Year Ending December 31, 2021 income statement is presented below. Midwest Mechanical Corporation Income statement For the year Ended December 31 2021 Sale revenue $ 35,300,000 Sales discount $ 35,800 Sales Returns and allowance $ 610,000 Accounts Receivable 4,800,000 Allowance for Doubtful Accounts $ 150,000 Prepaid Insurance 100,000 Short-Term Note Receivable 100,000 Inventory 9,500,000 Equipment Loss Due to Storm Damage 11,500,000 Accumulated Depreciation - Equipment Interest Expense $ 75,000 $ 150,000 $ 2,485,000 4,400,000 Building Income Tax Expense 1,500,000 Accumulated Depreciation - Building Gain on Sale of Equipment (Powerhead Division) 800,000 $ 1,700,000 $ 67,985,000 Land 250,000 Long-Term Investments 1,100,000 $ 67,985,000 Situation: The controller has requested that you prepare a correct version of the income statement. The income statement on page 2 was automatically generated by the company's SAP accounting sys- tem. The problem is that the system did not properly account for the Discontinued Operations," which of course is the Powerhead Division. Patent 1,000,000 Goodwill 500,000 Accounts Payable 4,650,000 Prepare the income statement correctly breaking out the impact of discontinued operations. Note: A 35% tax rate is applied to both continuing and discontinued income. Salaries and Wages Payable 150,000 Bond Payable - Long Term 5,000,000 End of document Mortgage Payable 1,100,000 Common Stock Par $ 0.01 10,000 APIC 990,000 Retained Earnings 13,650,000 Dividends - Common $ 500,000 Sales Revenue 35,300,000 Sales Discounts 325,000 Sales Returns and Allowances Cost of Goods Sold Selling Expenses 610,000 $ 20,950,000 $ 4,950,000 $ 2,925,000 Administrative Expenses Interest Income 85,000