interoffice memorandum to: from: subject: change in income statement presentation date: cc:

Classification changes in the 2006 income statement of our client Lads and Lassies, Inc. I have researched the FASB Accounting Standards Codification for clarification for the reporting and presentation of the various income statement items you requested.
There will need to be some changes to the income statement format. I will address each of the items separately.

Net sales
When Lads and lassies introduced Sassy Spa last year in 2005, they were able to consolidate the net sales in with Lads and Lassies clothing line for reporting purposes due to their percentage of sales being less than 10% of the total net sales.
However do to the success of Sassy Spa in 2006 their sales, are now in excess of 10% of net sales and will need to be reported as a separate line item from Lads and Lassies clothing line net revenue per regulation S-X rule 5-03, §225-10-S99-2(a)(b) and §§1(a)(d).

gross Profit
Included in the regulation S-X Rule 5-03, §225-10-S99-2 and §§2(a) (d), are requirements the costs and expenses associated with the applicable sales be reported separately on the income statement. The direct expense items for Lads and Lassies and Sassy Spay will need to be broken out separately in the cost of goods sold section. If the depreciation expense is not included in Cost of Goods Sold, §ASC 225-10-299-8 requires the description line item to indicate exclusive of any depreciation shown separately below.

gain on sale of corporate headquarters
Pursuant to §225-20-45-4(d) the sale or abandonment of property used in the business is being excluded from being presented as an extra-ordinary item. Gains or losses on the sale of property plant and equipment are extraordinary; however, they are in the normal course of doing business. The gain on sale of the abandoned building