Question

Multiple-Step Income Statement

On March 31, 2018, the balances of the accounts appearing in the ledger of Royal Furnishings Company, a furniture wholesaler, are as follows:

Accounts Receivable	$170,000		Inventory	987,550
Accumulated Depreciation—Building	737,500		Notes Payable	305,250
Administrative Expenses	520,750		Office Supplies	20,700
Building	2,515,100		Retained Earnings	1,278,950
Cash	169,050		Salaries Payable	7,950
Common Stock	314,050		Sales	6,187,800
Cost of Goods Sold	3,714,250		Selling Expenses	689,250
Dividends	171,850		Store Supplies	91,600
Interest Expense	9,600

a. Prepare a multiple-step income statement for the year ended March 31, 2018.

Royal Furnishings Company
Income Statement
For the Year Ended March 31, 2018
		$
Gross profit		$
Expenses:
	$
Total expenses
		$
Other expense:
		$

b. What is a major advantage of the multiple-step income statement over the single-step income statement?

Answer 1

Solution a:

Royal Furnishings Company
Income statement
For the year ended March 31, 2018
Particulars	Details	Amount
Sales		$6,187,800.00
Cost of goods sold		$3,714,250.00
Gross Profit		$2,473,550.00
Operating Expenses:
Administrative Expenses	$520,750.00
Selling Expenses	$689,250.00
Total operating expenses		$1,210,000.00
Earning before interest and Taxes		$1,263,550.00
Interest Expense		$9,600.00
Net Income		$1,253,950.00

Solution b:

A multiple-step income statement identify the company's gross profit, which is the difference of sales revenue and cost of goods sold, and operating profit, which is the difference of gross profit and operating expenses. Investors and financial analysts generally use the data from multiple-step income statements to determine a company's overall health, such as its gross margin and profit margin.

Therefore the major advantage of multiple step income statement over single step income statement is that The multiple-step income statement shows the relationship of gross profit to sales.