An inexperienced accountant prepared this condensed income statement for Simon Company, a retail firm that has been
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Question:
An inexperienced accountant prepared this condensed income statement for Simon Company, a retail firm that has been in business for a number of years.
Prepare a correct multiple-step income statement.
Simon Company Income Statement For the Year Ended December 31, 2022 | ||
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 that the following steps were taken by the accountant to compute the amounts presented in the income statement.
- 1. Net sales, as presented, consist of sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000.
- 2. Other revenues, as presented, consist of sales discounts $18,000 and rent revenue $4,000.
- 3. Selling expenses, as presented, consist of salespersons' salaries $97,600, depreciation on equipment $12,200, advertising $15,860, and sales commissions $7,320. The commissions represent commissions paid. At December 31, $3,660 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, as presented, 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 2023.
Instructions
Evaluate the steps taken by the inexperienced accountant so you can identify corrections that need to be made. Then, prepare a correct detailed multiple-step income statement. (Assume a 25% tax rate.)
Related Book For
Accounting
ISBN: 978-0324662962
23rd Edition
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren
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