Question

Multiple-Step Income Statement and Profit Margin The following income statement items, arranged in alphabetical order, are taken from the records of Shaw Corporation for the current year: Advertising expense $1,574 Interest expense $1,504 Commissions expense 2,316 Interest revenue 1,391 Cost of goods sold 29,210 Rent revenue 7,271 Depreciation expense - office building 3,088 Salaries and wages expense—office 11,357 Income tax expense 1,510 Sales revenue 48,053 Insurance expense - salesperson’s auto 2,142 Supplies expense—office 920 Required: Assume that Shaw Corporation classifies all operating expenses into two categories: (1) selling and (2) general and administrative.

  

1. Prepare a multiple-step income statement for the current year.

   Shaw Corporation
   Income Statement
   For the Current Year
   		$fill in the blank 23358a02bfacfa2_2
   		fill in the blank 23358a02bfacfa2_4
   			$fill in the blank 23358a02bfacfa2_6
   Operating expenses:
   Selling expenses:
   	$fill in the blank 23358a02bfacfa2_8
   	fill in the blank 23358a02bfacfa2_10
   	fill in the blank 23358a02bfacfa2_12
   Total selling expenses		$fill in the blank 23358a02bfacfa2_13
   General and administrative expenses:
   	$fill in the blank 23358a02bfacfa2_15
   	fill in the blank 23358a02bfacfa2_17
   	fill in the blank 23358a02bfacfa2_19
   Total general and administrative expenses		fill in the blank 23358a02bfacfa2_20
   Total operating expenses			fill in the blank 23358a02bfacfa2_21
   			$fill in the blank 23358a02bfacfa2_23
   Other revenues and expenses:
   		$fill in the blank 23358a02bfacfa2_25
   		fill in the blank 23358a02bfacfa2_27
   		fill in the blank 23358a02bfacfa2_29
   Excess of other revenues over other expenses			fill in the blank 23358a02bfacfa2_30
   			$fill in the blank 23358a02bfacfa2_32
   			fill in the blank 23358a02bfacfa2_34
   			$fill in the blank 23358a02bfacfa2_36

   2. What advantage do you see in multi-step income statement?
   

   3. Compute Shaw's profit margin. Round your answer to one decimal place.
   fill in the blank 044f5b03efe9fc2_2 %

   4. Reflect on the profit margin determined above. What does this mean?
   

Check My Work

Answer 1

• [1]

Shaw Corporation
Income Statement
For the Current Year
Sales revenue		$48,053
Less: Cost of Goods Sold		$29,210
Gross Profits			$18,843
Operating expenses:
Selling expenses:
Advertising expense	$1,574
Commission expense	$2,316
Insurance expense - Salesperson's auto	$2,142
Total selling expenses		$6,032
General and administrative expenses:
Depreciation expense - Office Building	$3,088
Salries & Wages expense - office	$11,357
Supplies expense - office	$920
Total general and administrative expenses		$15,365
Total operating expenses			$21,397
Operating income (loss) OR Income (Loss) from Operations			($2,554)
Other revenues and expenses:
Interest revenue		$1,391
Rent Revenue		$7,271
Interest expense		($1,504)
Excess of other revenues over other expenses			$7,158
Net Income (Loss) before income tax expense			$4,604
Less: Income tax expens			$1,510
Net Income (Loss)			$3,094

• [2]

Advantages:
>Expenses gets additionally classified.
>Operating Income is known.
>Net Income or loss before income tax gets known.
>Gross profits can be calculated.

• [3]

Profit margin = ($3094 net income / $ 48053 sales)
= 6.4%

• [4]
  This means that for every $ of sales generated, the company earns a profit of $ 0.064