Problem
|
REED COMPANY
December 31
|
|
2016
|
2015
|
|
Sales
|
$4,400,000
|
$3,500,000
|
|
Cost of goods sold
|
2,860,000
|
2,000,000
|
|
Administrative expenses
|
800,000
|
675,000
|
|
Selling expenses
|
360,000
|
312,000
|
|
Interest revenue
|
150,000
|
140,000
|
|
Interest expense
|
200,000
|
200,000
|
|
Loss on sale of assets of discontinued component
|
50,000
|
-
|
|
1/1/13 -
|
|
|
Results of operations for discontinued component (included above):
|
9/30/16
|
2015
|
|
Sales
|
$400,000
|
$500,000
|
|
Cost of goods sold
|
(290,000)
|
(320,000)
|
|
Administrative expense
|
(50,000)
|
(40,000)
|
|
Selling expenses
|
(20,000)
|
(30,000)
|
|
Operating income before taxes
|
$40,000
|
$110,000
|
|
Additional information:
|
|
|
|
Uninsured damage due to fire
|
$50,000
|
|
|
Cost of obsolete inventory
|
$40,000
|
|
|
Obsolete inventory sold for scrap
|
$5,000
|
|
|
Income tax rate
|
40%
|
|
|
Common stock shares
|
300,000
|
|
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 Sept. 30, 2016 for 50,000 less than their book value.
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 50,000 in uninsured damages to the main office building. The fire was considered to be infrequent but not unusual event.
2. Inventory that had cost 40,000 had become obsolete because a competitor introduced a better product. The inventory was sold for 5,000 income taxes have not yet been recorded.