Question

The financial records of Leon Paul Inc. were destroyed by fire at the end of 2017. Fortunately the controller had kept certain statistical data related to the income statement as presented below. 1. The beginning merchandise inventory was $184,000 and decreased 20% during the current year. 2. Sales discounts amount to $34,000. 3. 20,000 shares of common stock were outstanding for the entire year. 4. Interest expense was $40,000. 5. The income tax rate is 30%. 6. Cost of goods sold amounts to $1,000,000. 7. Administrative expenses are 20% of cost of goods sold but only 8% of gross sales. 8. Four-fifths of the operating expenses relate to sales activities. Operating expenses consist of selling and administrative expenses. Instructions From the foregoing information, prepare an income statement for the year 2017 in single step form.

Answer 1

Leon Paul Inc.
Income Statement
For the Year Ended December 31,2017
Sales Revenue (Gross)		$        2,500,000
Less: sales discounts		$              34,000
Net sales revenue		$        2,466,000
Less: expense
Cost of good sold	$        1,000,000
Administrative expenses	$            200,000
Selling expenses	$            800,000
Interest expense	$              40,000
Total expenses		$        2,040,000
Income before tax		$            426,000
Less: Tax expense @ 30%		$            127,800
Net income		$            298,200

Calculation parts
Administrative expenses = 20% of Cost of goods sold = 1000000*20%	200,000
Gross Sales revenue = 200000/8% (Hint: Administrative expense is only 8% of gross sales)	2,500,000
Operating expense include Administrative expenses and Selling expenses.
Four-fifths of the operating expenses related to sales activities.
It means one-fifth of the operating expenses related to administrative activities.
Operating expense = Administrative expenses * 5 = 200000 * 5	1,000,000
Selling expenses = Operating expense - Administrative expenses = 1000000-200000	800,000
Tax expense = 426000*30%	127,800