In: Accounting
On March 31, 20Y9, the balances of the accounts appearing in the ledger of Royal Furnishings Company, a furniture store, are as follows:
Accounts Receivable | $ 170,000 |
Accumulated Depreciation-Building | 750,000 |
Administrative Expenses | 435,000 |
Building | 3,500,000 |
Cash | 80,000 |
Common Stock | 300,000 |
Cost of Goods Sold | 5,500,000 |
Dividends | 175,000 |
Interest Expense | 15,000 |
Inventory | 980,000 |
Notes Payable | 250,000 |
Office Supplies | 20,000 |
Retained Earnings | 1,987,000 |
Salaries Payable | 8,000 |
Sales | 8,245,000 |
Selling Expenses | 575,000 |
Store Supplies | 90,000 |
1. | Prepare a multiple-step income statement for the fiscal year ended March 31, 20Y9. Be sure to complete the statement heading. Refer to the information given in the exercise and to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign. |
2. |
What is a major advantage of the multiple-step income statement over the single-step income statement? a. The multiple-step income statement clearly presents the value of total expenses. b. The multiple-step income statement shows the relationship of gross profit to sales. c. The multiple-step income statement clearly presents the value of total revenues. d. The multiple-step income statement is less complex to prepare. |
Requirement 1:
Royal Furnishings Company | ||
Income statement (multi-step) | ||
For the year ended March 31, 20Y9 | ||
Sales | $ 8,245,000 | |
Cost of goods sold | ($ 5,500,000) | |
Gross profit | $ 2,745,000 | |
Operating expenses: | ||
Administrative expense | $ 435,000 | |
Selling expense | $ 575,000 | |
Total operating expenses | $ 1,010,000 | |
Operating income | $ 1,735,000 | |
Other revenues and expenses: | ||
Interest expense | $ 15,000 | |
Net income | $ 1,720,000 | |
Requirement 2:
Answer: Option b) The multiple-step income statement shows the relationship of gross profit to sales.
Explanation:
A major advantage of the multiple-step income statement over the single-step income statement is the multiple-step income statement shows the relationship of gross profit to sales. In single-step we does not show the sales and gross profit relation but, in multiple-step income statement its shows all expenses also in different heads.
Thus, the option b) is correct and remaining options are incorrect.