Assignment: Preparing a Multiple-Step Income Statement
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 with a brief explanation of 700 words. Assume a 25% tax rate.
Show your work on the Excel spreadsheet and submit with your explanation.