Question

Multiple-Step Income Statement and Report Form of Balance Sheet The following selected accounts and their current balances appear in the ledger of Gloucester Co. for the fiscal year ended Auguest 31, 2016: Cash $126,700 Dividends 75,900 Accounts Receivable 340,800 Sales $4,640,500 Merchandise Inventory 385,100 Cost of Merchandise Sold 2,684,100 Office Supplies 11,900 Sales Salaries Expense 754,800 Prepaid Insurance 9,200 Advertising Expense 207,600 Office Equipment 278,800 Depreciation Expense— Store Equipment 40,400 Accumulated Depreciation— Office Equipment 189,500 Miscellaneous Selling Expense 17,700 Store Equipment 870,300 Office Salaries Expense 412,100 Accumulated Depreciation— Store Equipment 278,800 Rent Expense 60,800 Accounts Payable 192,900 Insurance Expense 18,900 Salaries Payable 12,300 Depreciation Expense— Office Equipment 30,400 Note Payable (final payment due 2032) 405,000 Office Supplies Expense 11,200 Common Stock 79,700 Miscellaneous Administrative Exp. 8,100 Retained Earnings 558,400 Interest Expense 12,300 Required: 1. Prepare a multiple-step income statement. GLOUCESTER CO. Income Statement For the Year Ended August 31, 2016 Sales 4,640,500 Cost of merchandise sold 2,684,100 Gross profit 1,956,400 Expenses: Selling expenses: Sales salaries expense 754,800 Advertising expense 207,600 Depreciation expense-store equipment 40,400 Miscellaneous selling expense 17,700 Total selling expenses 1,020,500 Administrative expenses: Office salaries expense 412,100 Rent expense 60,800 Insurance expense 18,900 Depreciation expense-office equipment 30,400 Office supplies expense 11,200 Miscellaneous administrative expense 8,100 Total administrative expenses 541,500 Total operating expenses Income from operations Other expense: Interest expense Net income 2. Prepare a retained earnings statement. GLOUCESTER CO. Retained Earnings Statement For the Year Ended August 31, 2016 3. Prepare a balance sheet, assuming that the current portion of the note payable is $20,250. GLOUCESTER CO. Balance Sheet August 31, 2016 Assets Current assets: Total current assets Property, plant and equipment: Total property, plant and equipment Total assets Liabilities Current liabilities: Total current liabilities Long-term liabilities: Total liabilities Stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity 4. a. Which type of income statement shows intermediate balances? b. Which type of balance sheet presents assets, liabilities, and stockholders' equity in a downward sequence? Feedback 1. Use the multiple-step income statement format, with its separation of revenues, cost of merchandise sold, selling expenses, administrative expenses, and other income and other expense. 2. Use the format for the retained earnings statement, showing the net income (or loss) taken from the income statement. 3. Use the format for the report form of balance sheet, with details on the current assets, property, plant and equipment, current liabilities, and long-term liabilities. The retained earnings amount is taken from the retained earnings statement. 4. (a) Consider the difference in the focus between the single-step income statement and the multiple-step income statement. Which one uses intermediate balances? Which one is a simple presentation of revenues minus expenses (similar to the definition of income)? 4. (b) Compare the format of the report-form balance sheet with the format of the account-form balance sheet. Which one vertically lists assets followed by liabilities followed by stockholders' equity? Which one balances Assets on the left side with Liabilities plus Stockholders' equity on the right side (similar to the Accounting equation?) Learning Objective 3.

Answer 1

1)	Multiple Step Income sttaement
	For the Year Ended August 31, 2016
	Sales			4,640,500
	Cost of mercandise sold			2684100
	Gross profit			1,956,400
	Selling and adminsitraive expenses
	Selling expenses
	sales Salaries expense	754,800
	Depreciation expense: store equipment	40,400
	Advertising expenses	207,600
	Miscelleneous selling expenses	17,700
	Total sellig expenses		1,020,500
	administrative expenses
	Rent expense	60,800
	Depreciation expense: office equipment	30,400
	Office salaries expenses	412,100
	Insurance expense	18,900
	Office supplies expenses	11,200
	Miscelleneous administrative expenses	8,100
	Ttal administrative expenses		541,500
	Total Selling and adminsitraive expenses			1,562,000
	Income from operations			394,400
	Other Expenses
	Interest expense			12,300
	Net Income			382,100
2)	Statement of Retained eranings
	Beginning Balance	558,400
	add: net Income	382,100
		940,500
	Less: dividends	-75,900
	E nding Balance	864,600
3)
	Balance Sheet
	For the Year Ended August 31, 2016
	Assets
	Current assets
	Cash			126,700
	Accounts receivable			340,800
	Mecandise Inventory			385,100
	Office supplies			11,900
	Prepaid Insurance			9,200
	Total Current assets			873,700
	Property, plant and equipment
	Office equipment	278,800
	Accumulated depreciation: office equipment	189,500	89,300
	Store equipment	870,300
	Accumulated depreciation: office equipment	278,800	591,500
	Total Property, plant and equipment			680,800
	Total Assets			1,554,500
	Liabilities & Stockholder equty
	Liabilities
	current Liabilities
	Accounts payable			192,900
	Notes payable			20,250
	Salaries payable			12,300
	Totalcurrent Liabilities			225,450
	Long term liabilities
	Notes payable			384,750
	Total liabilities			610,200
	Stockholder equty
	Common stock		79,700
	Retained earnings		864,600
	Total Stockholder equty			944,300
	Total Liabilities & Stockholder equty			1,554,500
4a	Multiple step Income statement uses intermediate balance
	Single step Income statement is a simple presentation
4b	Report form represents vertical form
	Account form represents assets on the left side and liabilities and stockholder
	equity on right side