Question

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

Prepare a correct multiple-step income statement.

Revenues

Net sales $850,000

Other revenues 22,000

Cost of goods sold 555,000

Gross profit 317,000

Operating expenses

Selling expenses 109,000

Administrative expenses 103,000

Net earnings $105,000

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

1. Net sales, as presented, consist of sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000.

2. Otherrevenues,aspresented,consistofsalesdiscounts$18,000andrentrevenue$4,000.

3. Selling expenses, as presented, consist of salespersons’ salaries $80,000, depreciation on equipment $10,000, advertising $13,000, and sales commissions $6,000. The com- missions represent commissions paid. At December 31, $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, as presented, 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.

Instructions

Prepare a correct detailed multiple-step income statement. Assume a 25% tax rate.

Answer 1

	Income Statement
		Details	Amounts
	Sales		911000
	Less : Sales Return and allowances		28000
	Net Sales		883000
	Less: Cost of Goods Sold		555000
	Gross Profit		328000
	Add: Rent Revenue		4000
	Less: Expense
	Freight Out	33000
	Sales Discount	18000
	Salaries and Wages Expense	106000
	Interest Expense	2000
	Rent Expense	18000
	Utilities Expense	12000
	Depreciation expense -office equipment	10000
	Sales Commission	6000
	Advertising Expense	13000
	Total Expense		218000
	Income before Tax		114000
	Less: 25 % Tax Rate		28500
	Net Income		85500
	Less: Dividends		18000
	Net Income transferred to Retained Earnings		67500

Sales will be recorded at its Gross Value of 911000

Sales Return and allowance is needed to be deducted for calculating Net Sales during the period

Cost of goods Sold is a direct Expense so will be deducted from Net sales to calculate Gross Profit

Rent Revenue will be treated separately as other Income and added to gross Profit

Freight Out, Sales Discount all other expenses will be recorded separately

All salaries and commissions are clubbed to Salaries and Wages Expense as provided in question.

Income Tax is calculated at income after expense

Dividend is distribution of Net Income so deducted at last stage