Question

In: Accounting

On March 31, 20Y9, the balances of the accounts appearing in the ledger of Royal Furnishings...

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.

Solutions

Expert Solution

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.

  • The value of total expenses clearly presents not only in multiple-step income statement but also in single-step income statement.
  • The value of total revenues clearly presents not only in multiple-step income statement but also in single-step income statement.
  • The multiple-step income statement is not a less complex to prepare

Thus, the option b) is correct and remaining options are incorrect.


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