You are the accountant for Celebration Company, and your assistant has prepared the following income statement for the year ended December 31, 2010:

You have uncovered the following facts:
a. Sales revenue includes $6,000 of items that have been back-ordered. (The items have not been delivered to the customers, although the customers have paid for the items.)
b. Selling expenses include $4,000 of allowances that were given to customers who received damaged products.
c. Rent expense includes $400 worth of rent that applies to 2011.
d. Salary expenses include $10,000 loaned to one of the executives for a boat.

Requirements

1. Prepare a corrected multistep income statement for the year. Celebration shows sales as the net amount only on its income statement.

2. Write a memo to your assistant explaining why each error you found is incorrect and what the correct accounting treatment shouldbe.

Transcribed Image Text:

Celebration Company Income Statement For the Year Ended December 31, 2010 Sales revenu Sales returns and allowances $650,000 2,000 . .48,300 (68,400) Freight expenses. Selling expenses Net sales.. Expenses Cost of goods sold Salary expenses . .. Rent expense 581,G00 350,000 82,000 10,000 23,500 4,000 Dividends Total expenses... Net income 469,500 .$112,100