Problem I- Income Statement

Hendrick, Inc. has the following data for the year ended December 31, 2017:

Net sales.......................................................................... ......... $270,000

Discontinued operations loss........................................... ........ 20,000

Cost of goods sold....................................................................... 165,000

Interest expense.......................................................................... 3,000

Selling expenses.......................................................................... 15,000

Administrative expenses.............................................................. 35,000

Shares of capital stock outstanding, 10,000

Tax rate of 30% on all items

Instructions

Prepare a multiple-step income statement for Hendrick, Inc. for the year ended December 31, 2017.

Problem II Ethics

Charlie Brown, Controller for Martha Corporation, is preparing the companys income statement at year-end. He notes that the company lost a considerable sum on the sale of some equipment it had decided to replace. Since the company has sold equipment routinely in the past, Brown knows the losses cannot be reported as an unusual item. He also does not want to highlight it as a material loss since he feels that will reflect poorly on him and the company. He reasons that if the company had recorded more depreciation during the assets lives, the losses would not be so great. Since depreciation is included among the companys operating expenses, he wants to report the losses along with the companys expenses, where he hopes it will not be noticed.

Instructions:

What are the ethical issue involved?

What should Brown do?