Preparing a multiple step income statement

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Business Finance

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
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.


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Explanation & Answer

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Running head: PREPARING A MULTIPLE-STEP INCOME STATEMENT

Preparing a Multiple-Step Income Statement
NAme
ACC/290
Date
Instructor

1

PREPARING A MULTIPLE-STEP INCOME STATEMENT

2

Preparing a Multiple-Step Income Statement
Companies have the choice between two forms of income statements. They are the single
step income statement and a multiple-step income statement. The total expenses are deducted in
the single step income statement from the total revenue to determine the net income or the net
loss. A multiple-step income statement focuses on three main line items. They are the gross
profit, the income from operations, and lastly, the net income. To determine the gross profit the
costs of goods get deducted from the net sales. By deducting operating expenses from the gross
profit, the income from operations is determined. Lastly, to determine the net income by adding
or subtracting the results of line items that are not due to operations (Kimmel, Kieso, &
Weygandt 2015). This week focuses on using and analyzing the multiple-step income statement
method.
The scenario of this week concentrates on an inexpert accounta...


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