Financial Accounting: Tools for Business Decision MakingFinancial Accounting: Tools for Business Decision MakingPreparing a Multiple‐Step Income Statement

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Ze.Haxabja

Business Finance

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Purpose of Assignment

The purpose of this assignment is to help you become familiar with the parts of the multiple‐step income statement.

Assignment Steps

Resources: Financial Accounting: Tools for Business Decision Making

Scenario: An inexperienced accountant prepared this condensed income statement for Simon Company, a retail firm that has been in business for a number of years.

SIMON COMPANY

Income Statement
For the Year Ended December 31, 2017

Revenues

Net sales

$850,000

Other revenues

22,000

872,000

Cost of goods sold

555,000

Gross profit

317,000

Operating expenses

Selling expenses

109,000

Administrative expenses

103,000

212,000

Net earnings

$105,000

As an experienced, knowledgeable accountant, you review the statement and determine the following facts:

  1. Net sales consist of: sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000.
  2. Other revenues consist of sales discounts $18,000 and rent revenue $4,000.
  3. Selling expenses consist of salespersons' salaries $80,000, depreciation on equipment $10,000, advertising $13,000, and sales commissions $6,000. The commissions represent commissions paid. At December 21, $3,000 of commissions have been earned by salespersons but have not been paid. All compensation should be recorded as Salaries and Wages Expense.
  4. Administrative expenses consist of office salaries $47,000, dividends $18,000, utilities $12,000, interest expense $2,000, and rent expense $24,000, which includes prepayments totaling $6,000 for the first quarter of 2018.

Prepare a detailed multi-step income statement with a brief explanation of 700 words. Assume a 25% tax rate.

Show your work on the Excel® spreadsheet and submit with your explanation.

Two documents will be needed - an Excel document and an APA formatted Word document.

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Name Section Date Problem 5-5A Simon Company SIMON COMPANY Income Statement For the Year Ended December 31, 2017 289
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Explanation & Answer

Here you go....

Name
Section
Date

Problem 5-5A
Simon Company

SIMON COMPANY
Income Statement
For the Year Ended December 31, 2017
Particulars
Sales Revenue
Less: Sales returns and allowances
Sales Discounts

Amount ($)
28,000
18,000

Net Sales
Less: Cost of goods sold
Gross Profit
Less: Operating Expenses:
Salaries and Wages Expenses

Amount ($)
911,000
(46,000)
865,000
(555,000)
310,000

136,000

Depreciation Expenses
Advertising Expense
Freight-out
Rent Expense
Utilities Expense

10,000
13,000
33,000
18,000
12,000

Total Operating Expenses
Income from operations
Add: Other Revenues and Gain:
Rent Revenue
Less: Other Expenses and Losses:

(222,000)
88,000
4,000

Interest Expense
Income before income taxes
Less: Income Tax Expense
Net Income

(2,000)
90,000
(22,500)
67,500

Calculating salaries and wages expense:
Salaries and wages expense= Salesperson Salaries + Sales Commissions + Office Salaries
= $80,000 + $9,000 +$47,000
= $136,000
Calculating Income Tax Expense:
Income Tax Expense = Income before income taxes x Tax Rate
= $90,000 x 25%

289

= $90,000 x 25%
= $22,500

289


Preparing a Multiple-Step Income Statement

1

Name
Preparing a Multiple-Step Income Statement
ACC 290
Instructor
Date

Preparing a Multiple-Step Income Statement

...


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