1. (d) Baer Food’s year 1 revenues should include net sales revenue ($187,000), interest revenue ($10,200), and gain on sale of equipment ($4,700), for a total of $201,900. Discontinued operations (loss of $12,400) and the extraordinary gain ($1,500) are both special items that should be reported as separate components of income, after income from continuing operations. Therefore, these items should not be included in the revenues section of the income statement (which is placed before income from continuing operations).
2. (a) To directly compute cost of goods manufactured (CGM), the formula is
|Beginning work in process|
|+ Direct materials used|
|+ Direct labor|
|+ Factory overhead|
|− Ending work in process|
|Cost of goods manufactured|
However, none of these elements are given in this problem, so CGM must be computed indirectly, using the cost of sales formula
Beginning finished goods
|+ Cost of goods manufactured||+ CGM|
|− Ending finished goods||−360,000|
Cost of sales
Solving for the missing amount, CGM is $200,000.
3. (a) All of the revenues, gains, expenses, and losses given in this problem are components of income from continuing operations. Income before income taxes is $180,000, as computed below.
|Revenues ($575,000 + $25,000)||$600,000|
|Expenses and losses ($240,000 + $70,000 ...|