Reference no: EM131808956

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.