| Course | ACC 421 Intermediate Financial Accounting I (ACC/421) |
|---|---|
| Week | 2 |
| Paper type | Financial statement preparation paper |
| Length | about 1,079 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 421 Week 2
One Year, Two Segments, One Sold: A Multiple-Step Income Statement With Discontinued Operations, Comprehensive Income and a Classified Balance Sheet for a Composite HVAC Services Company
[Student Name]
University of Phoenix
ACC/421: Intermediate Financial Accounting I
Week 2 Assignment
[Instructor Name]
[Date]
The company and all figures are composites written for a model paper; presentation rules and research findings come from the sources listed.
A composite HVAC company installs and services heating and cooling systems for homes and small businesses in one metropolitan area. Until October it also ran three appliance showrooms selling refrigerators, washers and ranges. The showrooms had been losing money as online retailers took share, and the board sold them to a regional chain, a strategic shift away from retail. The company's lenders and its minority investors will read this year's statements to judge the business that remains. When a company sells part of itself, the most useful number on the income statement is the one that describes only what it kept. This paper prepares the income statement and balance sheet for the year and explains the presentation.
Income From Continuing Operations
Net sales and service revenue from the continuing HVAC business were $48.6 million. Cost of goods sold and service, including equipment, parts and technician wages, was $31.2 million, so gross profit was $17.4 million, a gross margin of about 36%.
Operating expenses were selling expenses of $6.1 million, mainly advertising and sales commissions, and general and administrative expenses of $5.3 million. Operating income was $6.0 million.
Other revenues and expenses followed. Interest expense on the company's term loan was $0.7 million, and the company recorded a $0.2 million gain on selling two older service vans. Weygandt et al. (2021) describe these as nonoperating items, reported after operating income so readers can see what the core business earned. Income before income tax was $5.5 million. At a combined rate of 25%, income tax was about $1.375 million, and income from continuing operations was about $4.125 million.
Discontinued Operations
The showrooms meet the definition of a discontinued operation because they were a separate component whose sale represents a strategic shift. Their results are removed from the lines above and reported separately. The showrooms lost $0.6 million before tax from January to October, or $0.45 million after tax. The sale itself produced a loss of $0.4 million before tax, $0.3 million after tax, because inventory and fixtures sold for less than book value. The total loss from discontinued operations, net of tax, was $0.75 million. Net income was therefore about $3.375 million.
Earnings Per Share
The company had 1.5 million common shares outstanding throughout the year and no preferred stock or dilutive securities. Earnings per share from continuing operations was $2.75, the loss per share from discontinued operations was $0.50 and net earnings per share was $2.25. Presenting the per-share amounts separately allows investors to see that the business the company kept earned $2.75 a share.
Comprehensive Income
The company holds $1.8 million of corporate bonds as available-for-sale debt securities, a reserve for equipment replacement. Rising interest rates lowered their fair value, producing an unrealized loss of $0.16 million, or $0.12 million after tax. Under GAAP, that loss is excluded from net income and reported in other comprehensive income, since the company intends to hold the bonds and the loss may reverse. Comprehensive income for the year was about $3.255 million.
The Classified Balance Sheet
Current assets are those expected to be converted to cash or used within a year: cash of $2.4 million, accounts receivable of $6.3 million net of the allowance, parts and equipment inventory of $3.1 million and prepaid expenses of $0.4 million, a total of $12.2 million. Noncurrent assets include the available-for-sale bonds of $1.8 million, reported as long-term investments since they are held as a reserve rather than for near-term use, property and equipment of $14.5 million net of depreciation and intangible assets of $2.0 million, mostly customer lists purchased with a smaller competitor. Total assets are $30.5 million.
Current liabilities are accounts payable of $3.6 million, accrued wages and taxes of $2.1 million, unearned revenue on prepaid maintenance contracts of $1.4 million and the current portion of the term loan of $1.0 million, a total of $8.1 million. Long-term liabilities are the remaining term loan of $7.5 million and deferred income taxes of $0.9 million. Total liabilities are $16.5 million.
Stockholders' equity consists of common stock and additional paid-in capital of $4.0 million, retained earnings of $10.2 million and accumulated other comprehensive loss of $0.2 million, a total of $14.0 million. Liabilities and equity total $30.5 million, equal to total assets.
Working capital, current assets less current liabilities, is $4.1 million, and the current ratio is about 1.5. The maintenance contracts deserve attention: they are a liability because the company owes service, but they also signal a base of repeat customers. About 4,200 households and businesses prepaid for two inspections a year, and most renew. Classifying the whole $1.4 million as current is correct because every contract runs twelve months or less, but a reader should not treat it like a supplier invoice. It will be settled with technician time, not cash.
Comparing With Last Year
Last year's statements, restated to remove the showrooms, show continuing revenue of $45.1 million and income from continuing operations of $3.6 million. Continuing revenue therefore grew about 8% and continuing income about 15%, while reported net income last year, which included the showrooms, looked almost the same as this year. Restating prior periods so they show the same continuing business is what makes this comparison possible.
Reading the Statements as an Investor
An investor forecasting next year would start from income from continuing operations, not net income, because the showrooms will not recur. Bradshaw and Sloan (2002) documented how analysts and managers increasingly focus on earnings that exclude items considered nonrecurring, which makes clear GAAP presentation of those items more important, not less. Dichev et al. (2013) surveyed chief financial officers, who tied earnings quality to results that repeat and that cash flow eventually confirms; separating discontinued operations helps readers judge sustainability. The conceptual framework emphasizes predictive value (Financial Accounting Standards Board, 2010), and the multiple-step format delivers it by showing where profit came from.
Conclusion
The HVAC company's statements separate the business it kept from the business it sold, report an unrealized investment loss outside net income and classify every balance sheet item by when it will be realized or paid. The same total, net income of about $3.4 million, could have been presented in a single line, but the structure tells investors that the continuing business earned $4.1 million and that its prospects are better than the bottom line alone suggests.
References
Bradshaw, M. T., & Sloan, R. G. (2002). GAAP versus the street: An empirical assessment of two alternative definitions of earnings. Journal of Accounting Research, 40(1), 41-66. https://doi.org/10.1111/1475-679X.00038
Dichev, I. D., Graham, J. R., Harvey, C. R., & Rajgopal, S. (2013). Earnings quality: Evidence from the field. Journal of Accounting and Economics, 56(2-3, Suppl. 1), 1-33. https://doi.org/10.1016/j.jacceco.2013.05.004
Financial Accounting Standards Board. (2010). Conceptual framework for financial reporting (Statement of Financial Accounting Concepts No. 8).
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2021). Accounting principles (14th ed.). Wiley.
What the ACC 421 Week 2 instructions ask
The ACC 421 Week 2 assignment generally asks students to prepare or analyze an income statement and a balance sheet under GAAP. Prompts often require a multiple-step income statement showing gross profit, operating income, other revenues and expenses, income tax, income from continuing operations and, where relevant, discontinued operations and earnings per share. Many sections add a statement of comprehensive income. The balance sheet portion usually asks for classification of current and noncurrent assets and liabilities and the parts of stockholders' equity. Some versions supply trial balance data; others ask students to explain the statements of a public company. Students should show the structure clearly and explain why each item is placed where it is.
How this ACC 421 Week 2 example is built
An HVAC services company works for this week because it has product sales and service revenue, equipment and vehicles, service contracts paid in advance and an investment portfolio, and because selling a segment introduces discontinued operations. The paper lists the year's results first, then builds the income statement in stages in prose, explaining each subtotal. Discontinued operations are separated with their tax effects, and earnings per share is split between continuing and discontinued results. The comprehensive income section adds an unrealized loss on debt securities. The balance sheet is then built by class, with working capital calculated. A final section explains how an investor would use the separation between continuing and discontinued results.
ACC 421 Week 2 grading rubric: where the points go
The rubric for statement preparation tends to reward correct structure, correct classification and clear reasoning. Faculty check that subtotals such as gross profit, operating income and income from continuing operations are computed in the right order, that discontinued operations are shown net of tax below continuing operations and that earnings per share is presented for each. Balance sheet items must be classified correctly, including the current portion of long-term debt and unearned revenue. Explaining why items are placed as they are earns credit beyond the numbers. Totals must agree and the balance sheet must balance. Clean formatting, logical headings and correct APA references form the last part of the grade.
ACC 421 Week 2 help: mistakes to avoid
A common ACC 421 Week 2 error is placing a gain on the sale of equipment within revenue or operating income without explanation; many companies report such gains as other income. Be consistent and say why. Another is reporting discontinued operations before tax or mixing them into continuing results. Show them net of tax on their own line. Students also forget comprehensive income or place unrealized losses on debt securities in net income. Classify unearned service contracts as current if they will be earned within a year. Check that the balance sheet balances before writing the explanation. Finally, explain what the separation of continuing results tells an investor about next year.
Related ACC 421 sample papers
Other ACC 421 week samples
- ACC 421 Week 1: Conceptual Framework and Accruals
- ACC 421 Week 3: Time Value of Money
- ACC 421 Week 4: Cash and Receivables
- ACC 421 Week 5: Inventory Valuation
More BS in Accounting sample papers
- ACC 315 Week 2: Company Setup and Chart of Accounts
- ACC 326 Week 2: Cost Concepts and Allocation
- ACC 349 Week 2: Standard Costs and Variances
ACC 421 Week 2 questions, answered
What does ACC 421 Week 2 usually cover?
It usually covers the income statement and balance sheet: multiple-step income statements, discontinued operations, comprehensive income, earnings per share and classified balance sheets.
Where can I find a free ACC 421 Week 2 sample paper?
The HVAC services company example on this page builds both statements step by step, with margin comments, and nothing is locked. Send the trial balance or company from your prompt and we will draft your first paper for free.
What is a multiple-step income statement?
It separates operating from nonoperating activities and shows subtotals such as gross profit, operating income and income before taxes before arriving at net income.
How are discontinued operations reported?
Results of a component sold or held for sale that represents a strategic shift are reported separately, net of tax, after income from continuing operations, with earnings per share shown for each.
What is other comprehensive income?
It includes certain gains and losses excluded from net income, such as unrealized gains and losses on available-for-sale debt securities, reported in comprehensive income and accumulated in equity.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official University of Phoenix document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
Request this one custom, free · All ACC 421 week samples · All courses