Reference no: EM132763134
Question - Company A has the following information available for years ending December 31, 2020, 2019, and 2018:
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2020
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2019
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2018
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Revenues
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$20,000,000
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$28,000,000
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$26,000,000
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Cost of Goods Sold
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11,800,000
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16,240,000
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15,200,000
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Operating Expenses
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4,100,000
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5,400,000
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5,200,000
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Interest Expense
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1,100,000
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1,300,000
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1,450,000
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Additional Information:
During the year ended December 31, 2018, the company had one of its operations destroyed by a flood. The area where this operation was located had not flooded in over 100 years. The company incurred a before-tax loss of $300,000 as a result of this event.
On February 1, 2019, the company sold an operating segment of the company for $2,400,000 more than the segment's book value. This segment constituted a separate major line of business for Company A. The segment had revenues of $3,000,000 for 2019 and $2,600,000 for 2018. Cost of goods sold was $750,000 in 2019 and $600,000 in 2018. Operating expenses were $700,000 in 2019 and $550,000 in 2018.
In 2019, the company changed their method of depreciating most of their fixed assets from double-declining balance to straight-line. This change resulted in a decrease in depreciation expense of $220,000 for 2019. 2018 depreciation expense would have been decreased of $280,000 if straight-line had been used. Depreciation for years prior to 2018 would have been decreased by a total of $1,600,000 if straight-line had been used in those years.
The company had a tax rate of 20% for all years. Assume no deferred taxes.
The company had 1,000,000 shares of $1 par common stock outstanding on January 1, 2018. On April 1, 2018, an additional 50,000 shares were issued for $15 per share. On November 1, 2019, the company purchased 30,000 shares of their own stock as treasury stock for $16 per share. The company uses the cost method to account for treasury stock. On December 1, 2020, the company declared and issued a 50% stock dividend. The market price of the Company A stock was $24 per share on that date.
The company issued 10,000 bonds on January 2, 2016 at par. The bonds are 10-year bonds with a par value of $1,000 and a face interest rate of 8%. Each bond is convertible into 40 shares of Company A common stock. At December 31, 2020, none of the bonds have been converted.
On January 1, 2019 the company issued 300,000 stock options to its CEO. The options allow the CEO to purchase common stock shares for $15 per share. The CEO may begin exercising the options on January 1, 2021 provided she is still employed by the company. She currently remains CEO of the company.
The average market price of Company A common stock for year ended December 31, 2019 was $18 and for year ended December 31, 2020, it was $21. The December 31 closing market price for Company A common stock was $19 for 2019 and $23 for 2020.
Required - Prepare, in good form, the Income Statement for year ended December 31, 2020 with the two prior years shown for comparative purposes. Include all earnings per share amounts required to be reported in the financial statements on the face of the comparative Income Statement.