Question

1. Multiple-Step Income Statement

   On March 31, 2018, the balances of the accounts appearing in the ledger of Royal Furnishings Company, a furniture wholesaler, are as follows:

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   Accounts Receivable	$170,000		Inventory	980,000
   Accumulated Depreciation—Building	$750,000		Notes Payable	250,000
   Administrative Expenses	435,000		Office Supplies	20,000
   Building	3,500,000		Retained Earnings	1,987,000
   Cash	80,000		Salaries Payable	8,000
   Common Stock	300,000		Sales	8,245,000
   Cost of Goods Sold	5,500,000		Selling Expenses	575,000
   Dividends	175,000		Store Supplies	90,000
   Interest Expense	15,000

   a. Prepare a multiple-step income statement for the year ended March 31, 2018.

   Royal Furnishings Company
   Income Statement
   For the Year Ended March 31, 2018
   		$
   Gross profit		$
   Expenses:
   	$
   Total expenses
   		$
   Other revenue and expense:
   		$

   b. What is a major advantage of the multiple-step income statement over the single-step income statement?

Answer 1

Answer a:

The multiple income statement is prepared below:

Answer b:

The major advantage of multiple step income statement is that it itemized the various expense and revenue according to their nature. Under this statement the direct cost i.e. cost of goods sold is deducted from sales to calculate the gross profit and operating expense deducted from the gross profit to calculate the operating profit. The investor and financial analyst used the data of multiple income statement to analyse the company performance. On the other hand, single step income statement does not contain the above information hence, does not used for analysis purpose.