You are the accountant for Baldwin Company, and your assistant has prepared the following income statement for the year ended September 30, 2010:

You have uncovered the following errors:
a. Sales revenue includes $5,000 of items that have been back-ordered. (The items have not been delivered to the customers, and the customers have not been billed for the items.)
b. Selling expenses include $250 of allowances that were given to customers who received damaged products.
c. Insurance expense includes $100 worth of insurance that applies to 2011.
d. Administrative expenses include a loan made to worker who had some serious financial trouble and needed $500 to pay a hospital bill. The worker plans to repay the money by the end of December.

Requirements
1. Prepare a corrected multistep income statement for the year. Baldwin 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:

Baldwin Company Income Statement For the Year Ended September 30, 2010 $850,000 Sales revenue _ _ . . Sales returns and allowances Freight costs 22,500 14,300 (6,800) 813,200 Net sales Expenses $540,000 160,000 20,000 40,000 8,000 Selling expenses . . . nsurance expense . , .. Administrative expenses Dividends Total expenses. 758,000 .. 55,200 Net income