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. A listing of the major sections of an income statement follows:

A. Net sales less operating expense section

B. Other unusual and/or infrequent gains (losses)

C. Taxes reported on income (loss) from continuing operations

D. Income (loss) from operating a discontinued segment, or gain (loss) from its disposal

Indicate where each of the following income-related items for this company appears on its 2017 income statement by writing the letter of the appropriate section in the blank beside each item.

Section Item Debit Credit

_______ 1. Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(2,900,000

_______ 2. Gain on state’s condemnation of company property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,000

_______ 3. Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)1,480,000

_______ 4. Income taxes expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,000

_______ 5. Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232,000

_______ 6. Gain on sale of wholesale business segment, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775,000

_______ 7. Loss from operating wholesale business segment, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,000

_______ 8. Loss of assets from meteor strike . . . . . . . . . . . . . . . . . . . . 640,000

Short answer

Items	List of sections
1.	A
2.	B
3.	A
4.	C
5.	A
6.	D
7.	D
8.	B

Step-by-step solution

Step 1:Definition of Net Income

Net income is defined as the income generated by the company after deducting all expenses incurred during the period from the revenues generated during the period

Indication of each item in income statements

Section	Item	Debit ($)	Credit ($)
A	1. Net Sales		2,900,000
B	2. Gain on state’s condemnation of company property		230,000
A	3. Cost of goods sold	1,480,000
C	4. Income Taxes expenses	217,000
A	5. Depreciation Expense	232,000
D	6. Gain on sale of wholesale business		775,000
D	7. Loss from operating wholesale business segment, net of tax	444,000
B	8. Loss of assets from meteor strike	640,000

Explanation about the income statement

A simple income statement is prepared if the business has only those expenses or revenues generally related to their business.

But if the business has many other items that are not part of continuing operations, then the company separates the income statement into continuing and discontinued segments.