Question

E4-7 (LO2,3,4) (Multiple-Step and Single-Step Statements) The accountant of Latifa Shoe Co. has piled the following information from the company's records as a basis for an income statement for the year ended December 31, 2017.

Rent revenue	$29,000
Interest expense	18,000
Market appreciation on land above cost	31,000
Salaries and wages expense (selling)	114,800
Supplies (selling)	17,600
Income tax	37,400
Salaries and wages expense (administrative)	$135,900
Other administrative expenses	51,700
Cost of goods sold	496,000
Net sales	980,000
Depreciation on plant assets (70% selling, 30% administrative)	65,000
Cash dividends declared	16,000

There were 20,000 shares of common stock outstanding during the year.

Instructions

(a) Prepare a multiple-step income statement.

(b) Prepare a single-step income statement.

(c) Which format do you prefer? Discuss.

COPY AND PASTE ONLY!!

Answer 1

(a)                                                               Multiple-Step Form
Latifa Shoe Co
Income Statement
For the Year Ended December 31, 2017
Net sales.............................................................................						$980,000
Cost of goods sold.............................................................						496,000
Gross profit on sales.........................................................						484,000
Operating Expenses
Selling expenses
Wages and salaries...............................................	$114,800
Depr. exp. (70% X $65,000)................................	45,500
Materials and supplies..........................................	17,600	$177,900
Administrative expenses
Wages and salaries...............................................	135,900
Other admin. expenses.........................................	51,700
Depr. exp. (30% X $65,000)................................	19,500	207,100				385,000
Income from operations...................................................						99,000
Other Revenues and Gains
Rental revenue............................................................						29,000
						128,000
Other Expenses and Losses
Interest expense..........................................................						18,000
Income before income tax................................................						110,000
Income tax...................................................................						37,400
Net income.........................................................................						$ 72,600
Earnings per share ($72,600 ÷ 20,000)...........................						$3.63
(b)                                                                 Single-Step Form
Latifa Shoe Co.
Income Statement
For the Year Ended December 31, 2017
Revenues
Net sales.....................................................................................................					$   980,000
Rental revenue..........................................................................................					29,000
Total revenues.....................................................................................					1,009,000
Expenses
Cost of goods sold.....................................................................................					496,000
Selling expenses.........................................................................................					177,900
Administrative expenses...........................................................................					207,100
Interest expense........................................................................................					18,000
Total expenses.....................................................................................					899,000
Income before income tax..............................................................................					110,000
Income tax.................................................................................................					37,400
Net income.......................................................................................................					$     72,600
Earnings per share ($72,600 ÷ 20,000).........................................................					$3.63

Note: An alternative income statement format for the single-step form is to show income tax as part of expense, and not as a separate item.

(c)	Single-step:
	1.     Simplicity and conciseness.
	2.     Probably better understood by users.
	3.     Emphasis on total costs and expenses and net income.
	4.     Does not imply priority of one revenue or expense over another.
	Multiple-step:
	1.     Provides more information through segregation of operating and nonoperating items.
	2.     Expenses are matched with related revenue.