Question

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

CULLUMBER COMPANY Income Statement For the Year Ended December 31, 2017
Revenues
Net sales		$1,275,000
Other revenues		33,000
		1,308,000
Cost of goods sold		832,500
Gross profit		475,500
Operating expenses
Selling expenses		163,500
Administrative expenses		154,500
		318,000
Net earnings		$157,500

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

1.		Net sales consist of sales $1,366,500, less freight-out on merchandise sold $49,500, and sales returns and allowances $42,000.
2.		Other revenues consist of sales discounts $27,000 and rent revenue $6,000.
3.		Selling expenses consist of salespersons’ salaries $120,000; depreciation on equipment $15,000; advertising $19,500; and sales commissions $9,000. The commissions represent commissions paid. At December 31, $4,500 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 $70,500; dividends $27,000; utilities $18,000; interest expense $3,000; and rent expense $36,000, which includes prepayments totaling $9,000 for the first quarter of 2018.

Prepare a correct detailed multiple-step income statement. Assume a 25% tax rate. (List other revenues before other expenses. Round answers to 0 decimal places, e.g. 5,125.)

Answer 1

Cullumber Company

Income Statement

For the Year Ended 31,2017

Particulars	Amount$	Amount$
Revenues		13,66,500
Sales
Less :
Sales Returns & Allowances	42,000
Sales Discount	27,000
		69,000
Net Sales		12,97,500
Cost of Goods Sold		8,32,500
Gross profit		4,65,000
Operating Expenses :
Salaries & Wages Expense (1,20,000 + 70,500 + 9,000 + 4,500)	2,04,000
Depeciation Expense	15,000
Freight out	49,500
Advertising Expense	19,500
Utilities Expense	18,000
Rent Expense	36,000
Total Operating Expense		3,42,000
Operating Income		1,23,000
Other Revenue & Gains
Rent Revenue		6,000
Other Expenses & Losses
Interest Expenses		3,000
Income Before Income Taxes		1,26,000
Income tax (1,26,000 x 25%)		31,500
Net income		94,500

Net income of Cullumber Company For the Year Ended December 31,2017