An inexperienced accountant prepared this condensed income statement for Simon Company, a retail firm that has been in business for a number of years.
SIMON COMPANY
Income Statement
For the Year Ended December 31, 2017
Revenues
Net sales...................................$850,000
Other revenues..............................22,000
...............................................872,000
Cost of goods sold........................555,000
Gross profit.................................317,000
Operating expenses
Selling expenses...........................109,000
Administrative expenses..................103,000
...............................................212,000
Net earnings..............................$105,000
As an experienced, knowledgeable accountant, you review the statement and determine the following facts.
1. Net sales consist of sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000.
2. Other revenues consist of sales discounts $18,000 and rent revenue $4,000.
3. Selling expenses consist of salespersons' salaries $80,000, depreciation on equipment $10,000, advertising $13,000, and sales commissions $6,000. The commissions represent commissions paid. At December 31, $3,000 of commissions have been earned by salespersons but have not been paid. All compensation should be recorded as Salaries and Wages Expense.
4. Administrative expenses consist of office salaries $47,000, dividends $18,000, utilities $12,000, interest expense $2,000, and rent expense $24,000, which includes prepayments totaling $6,000 for the first quarter of 2018.
Instructions
Prepare a correct detailed multiple-step income statement. Assume a 25% tax rate.