Question
Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31): 2016 2015 Sales $
Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31): |
2016 | 2015 | |||
Sales | $ | 5,400,000 | $ | 4,500,000 |
Cost of goods sold | 3,060,000 | 2,200,000 | ||
Administrative expenses | 1,000,000 | 875,000 | ||
Selling expenses | 560,000 | 512,000 | ||
Interest revenue | 170,000 | 160,000 | ||
Interest expense | 240,000 | 240,000 | ||
Loss on sale of assets of discontinued component | 130,000 | |||
On July 1, 2016, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by GAAP. The assets of the component were sold on September 30, 2016, for $130,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows: |
1/1/16-9/30/16 | 2015 | ||||||
Sales | $ | 600,000 | $ | 700,000 | |||
Cost of goods sold | (390,000 | ) | (440,000 | ) | |||
Administrative expenses | (70,000 | ) | (60,000 | ) | |||
Selling expenses | (40,000 | ) | (50,000 | ) | |||
Operating income before taxes | $ | 100,000 | $ | 150,000 | |||
In addition to the account balances above, several events occurred during 2016 that have not yet been reflected in the above accounts: | |
1. | A fire caused $70,000 in uninsured damages to the main office building. The fire was considered to be an infrequent but not unusual event. |
2. | Inventory that had cost $60,000 had become obsolete because a competitor introduced a better product. The inventory was sold as scrap for $7,000. |
3. | Income taxes have not yet been recorded. |
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