Question

In 2017, Randa Merchandising, Inc., sold its interest in a chain of wholesale outlets, taking the company completely out of the wholesaling business. The company still operates its retail outlets. Indicate where each of the following income-related items for this company appears on its 2017 income statement.
1. Net sales
2. Gain on state's condemnation of company property, net of tax
3. Cost of goods sold
4. Income taxes expense
5. Depreciation expense
6. Gain on sale of wholesale business segment, net of tax
7. Loss from operating wholesale business segment, net of tax
8. Loss of assets from a meteor strike, net of tax

Required:
Prepare the income statement for the calendar year 2017.

Answer 1

Answer:

Randa Merchandising, Inc.

1. Indication of where each of the following income-related items for this company appears on its 2017 income statement.

Income Statement

1. Net Sales

2. Cost of goods sold

3. Depreciation expense

4. Income taxes expense

5. Gain on state's condemnation of company property, net of tax

6. Gain on sale of wholesale business segment, net of tax

7. Loss from operating wholesale business segment, net of tax

8. Loss of assets from a meteor strike, net of tax

Explanation:

Randa's income statement is prepared using a step-by-step approach.  It starts with the net sales from which the cost of goods sold is deducted to arrive at the gross profit.  Thereafter, the operating expenses are deducted to obtain the operating income.  Based on this, income taxes are computed before arriving at the operating income after taxes.  And then, the extraordinary items are disclosed (net of taxes) before arriving at the net income.