Description
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 |
|
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:
- Net sales consist of: sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000.
- Other revenues consist of sales discounts $18,000 and rent revenue $4,000.
- 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.
- 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 (your explanation must be in a Word document and formated per APA guidelines). Assume a 25% tax rate.
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Explanation & Answer
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Running Head: INCOME STATEMENT
1
Income statement analysis
Student Name:
Professor’s Name:
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Date:
INCOME STATEMENT
2
In an organization, finance and accounting play an imperative role in managing finances
matters of the organization. Ideally, finance plays a crucial role in steering the company to higher
levels. To properly manage organizational finances, it is important to prepare financial statement
(Collis & Holt, 2012). Example of the financial statement includes statement of financial
position, statement of comprehensive income, statement of shareholders’ equity and statement of
cash flow among others. Each financial statement has its provisions and entries. For example, as
the word suggests, statement of financial position (balance sheet) depict or show the financial
muscle of the company regarding the assets and liabilities. Income statement depicts the profits
generated by the company over a period usually one year. Statement of cash flow depicts the
how the company has received cash as well as giving out...