Presented below is information related to Viel Company at December 31, 2014, the end of its first year of operations.
| Sales revenue | $310,000 | ||
| Cost of goods sold | 140,000 | ||
| Selling and administrative expenses | 50,000 | ||
| Gain on sale of plant assets | 30,000 | ||
| Unrealized gain on available-for-sale investments | 10,000 | ||
| Interest expense | 6,000 | ||
| Loss on discontinued operations | 12,000 | ||
| Allocation to noncontrolling interest | 40,000 | ||
| Dividends declared and paid | 5,000 |
Compute the following:
| (a) | Income from operations | $ | |||
| (b) | Net income | $ | |||
| (c) | Net income attributable to Viel Company |
Expert Answer
General guidance
Concepts and reason
Financial statements: Financial statements are the statement of the state of affairs of the company. Financial statement serves the need of external and internal users. It includes an income statement, balance sheet, statement showing changes in equity and cash flow statement.
Income statement: An income statement is one of the financial statements prepared at the end of a particular period. It is a summary of income and expenses. It shows net income or loss for a particular period. Income from continuing operations and income from discontinued operations are two line items shown on an income statement. Fundamentals
Income from operations: Income from operations is defined as income generated after deducting all operating expenses from gross profit but before considering non-operating revenue and expenses.
Income (loss) from continuing operations: Income (loss) from continuing operations is a line item shown on an income statement which represents income (revenue less expenses) earned after considering non-operating incomes and expenses but before extraordinary items, nonrecurring items, and cumulative effects of accounting principles from ongoing operations of business.
Income (loss) from discontinued operations: Income (loss) from discontinued operations is one line item shown on an income statement of the company. It is shown below the line item of income from continuing operations. This income represents income or loss from discontinued segment of company.
Step-by-step
Step 1 of 4
(a)
If sales revenue earned is greater than cost of goods sold and operating expenses, it results in income from operations and if operating expenses and cost of goods sold are greater than sales revenue earned, it results in loss from operations.
Compute income from operations:
Therefore, income from operations of V Company for the year ended December 31, 2014 is $120,000. Part aIncome from operations for the year ended December 31, 2014 is $120,000.
Explanation | Hint for next step
First, calculate gross profit by deducting cost of goods sold from sales revenue. Then, deduct selling and administrative expenses from gross profit to calculate income from operations.
Step 2 of 4
(b)
Compute income from continuing operations for the year ended December 31, 2014:
Therefore, income from continuing operations for the year ended December 31, 2014 is $144,000.
Explanation | Hint for next step
Other income and other expenses given in the question should be added and deducted respectively. Here, other income is gain on sale of plant assets which should be added and other expenses is interest expense should be deducted from income from operations to calculate income from continuing operations.
Step 3 of 4
If loss from discontinued operations is less than income from continuing operations, it results in net income. Otherwise, if loss from discontinued operations is greater than income from continuing operations, it results in net income.
Calculate net income for the year ended December 31, 2014:
Therefore, net income of V Company for the year ended December 31, 2014 is $132,000. Part bNet income for the year ended December 31, 2014 is $132,000.
Explanation | Hint for next step
Deduct loss from discontinued operations from income from continuing operations to calculate net income for the year ended December 31, 2014.
Step 4 of 4
c)
Calculate net income attributable to V Company:
Therefore, net income attributable to V Company is $92,000. Part cNet income attributable to V Company for the year ended December 31, 2014 is $92,000.
Explanation
Non-controlling interest is the portion not attributable to the V Company. Deduct allocation to non-controlling interest from net income to calculate net income attributable to V Company.
Answer
Part aIncome from operations for the year ended December 31, 2014 is $120,000. Part bNet income for the year ended December 31, 2014 is $132,000. Part cNet income attributable to V Company for the year ended December 31, 2014 is $92,000.
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