Assignment: Preparing a Multiple-Step Income Statement
Purpose of Assignment
The purpose of this assignment is to help you become familiar with the parts of the multiple-step income statement.
Assignment Steps
Resources: Financial Accounting: Tools for Business Decision Making
Scenario: An inexperienced accountant prepared this condensed income statement for Simon Company, a retail firm that has been in business for a number of years.
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SIMON COMPANY
Income Statement
For the Year Ended December 31, 2017
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Revenues
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Net sales
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$850,000
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Other revenues
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22,000
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872,000
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Cost of goods sold
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555,000
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Gross profit
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317,000
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Operating expenses
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Selling expenses
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109,000
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Administrative expenses
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103,000
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212,000
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Net earnings
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$105,000
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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 21, $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.
Prepare a detailed multi-step income statement assuming a 25% tax rate. Write a brief explanation of 200 to 350 words on how the experienced accountant was able to determine the facts noted in the instructions. This explanation should be included on the Excel Worksheet provided in correct sentence structure.