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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
Loss on sale of assets of discontinued component
50,000
-
1/1/13 -
Results of operations for discontinued component (included above):
9/30/16
$400,000
$500,000
(290,000)
(320,000)
Administrative expense
(50,000)
(40,000)
(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
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.
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