In 2016, Kim Company sold land for $100,000 cash. The land had originally cost $
ID: 2597111 • Letter: I
Question
In 2016, Kim Company sold land for $100,000 cash. The land had originally cost $52,000. Also, Kim sold inventory that had cost $184,000 for $279,000 cash. Operating expenses amounted to $45,000.
Required
a. Prepare a 2016 multistep income statement for Kim Company.
b. Assume that normal operating activites grow evenly by 18% during 2017. Prepare a 2017 multistep income statement for Kim company.
c. Determine the percentage change in net income between 2016 and 2017. (Round answer to one decimal place.)
d. Should the stocklholders have expected the results determined in Requirement c?
Net Income by %Explanation / Answer
A. Multistep income statement for Kim Company for 2016:
Kim Company
Income Statement
For the Year Ended 2016
Sales Revenue:
Net Sales Revenue
$ 279,000
Less: Cost of Goods Sold:
$ 184,000
Gross Profit
$ 95,000
Less: Operating Expenses
$ 45000
Operating Income
$ 50,000
Other Incomes and Expenses:
Gains on Sale of Land
Sale Value
$100000
Less: Cost of Land
$ 52000
$ 48,000
Net Income
$ 98,000
B. projected Multistep income statement for Kim Company for 2017 with Growth of 18%:
Kim Company
Projected Income Statement
For the Year Ended 2017
Sales Revenue:
Net Sales Revenue
$ 329,220
Less: Cost of Goods Sold:
$ 217120
Gross Profit
$ 112100
Less: Operating Expenses
$ 53100
Operating Income
$ 59000
Other Incomes and Expenses:
$ 0
Net Income
$ 59,000
Note: It is assumed that All the Cost of Cost of Goods Sold and Operating Expenses are variable in nature
C. Percentage change in net income between 2016 and 2017.
Particulars
2016
2017
Change in Profit
% Change
Net Profit
$ 98000
$ 59000
$ -39000
40% (Decrease)
D. As per calculation in point C net profit of the company is decreasing in 2017 by 40% as compared to 2016 profit but, while going through the operating Profit as calculated in Income Statement of there is a hike of 18% in profit in 2017 as compared to 2016.
The net profit in 2016 is higher due to exceptional or extra-ordinary item like sale of land which do not effect on operating of the company.
Kim Company
Income Statement
For the Year Ended 2016
Sales Revenue:
Net Sales Revenue
$ 279,000
Less: Cost of Goods Sold:
$ 184,000
Gross Profit
$ 95,000
Less: Operating Expenses
$ 45000
Operating Income
$ 50,000
Other Incomes and Expenses:
Gains on Sale of Land
Sale Value
$100000
Less: Cost of Land
$ 52000
$ 48,000
Net Income
$ 98,000
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