It is the end of a reporting period. Because there are more people than usual retiring this year, your manager has asked your accounting department to create 2 things:
• A process documentation detailing the different methods of preparing income statements, specific sections of the income statement, and how to handle the special types of income statement items
• Basic financial statements for your company
o Select a company filing of your choice that contains a multiple-step income statement.
o Communicate your selection with your group (each of you should submit a different company).
o Submit the link to this filing as proof of your research.
2. Prepare a process documentation that
o is prepared in a professional manner because it will be the desktop guide used by others in the event of your absence to prepare the financial statements for Music Warehouse.
o is in the form of a memorandum or as a numbered listing of items, depending on your individual preference.
o includes the following elements:
- a definition and description of the specific sections of the income statement
- a description of the different methods of preparing income statements
- an explanation of the conceptual guidelines for reporting income
- how to handle the special types of income statement items
Using the information below, do the following:
• Prepare a multiple-step income statement for Music Warehouse.
• Prepare a statement of changes in stockholder's equity for Music Warehouse.
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Music Warehouse
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Adjusted Trial Balance
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December 31, 2008
|
|
|
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Cash
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Debit
$24,675
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Credit
|
|
Accounts Receivable
|
5,625
|
|
|
Inventory
|
65,980
|
|
|
Land
|
93,000
|
|
|
Building
|
289,000
|
|
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Accumulated Depreciation
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|
75,000
|
|
Notes Payable
|
|
85,000
|
|
Accounts Payable
|
|
53,600
|
|
Interest Payable
|
|
4,750
|
|
Common Stock
|
|
10,000
|
|
Additional Paid-in Capital
|
|
120,000
|
|
Dividends
|
10,000
|
|
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Retained Earnings
|
|
59,980
|
|
Sales
|
|
937,500
|
|
Sales Discounts
|
22,675
|
|
|
Cost of Goods Sold
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723,000
|
|
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Salaries
|
81,000
|
|
|
Utilities
|
8,900
|
|
|
Repairs & Maintenance
|
5,225
|
|
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Telephone
|
2,850
|
|
|
Interest Expense
|
4,400
|
|
|
Depreciation Expense
|
9,500
|
|
|
$1,345,830
|
$1,345,830
|
The following is additional information needed for financial-statement preparation:
• Loss as a result of hurricane damage on the building: $17,000 (assume that the building is not located in an area that sustains frequent hurricane damage.)
• Loss because of the discontinuation of the cassette tape music segment: $26,875
• Beginning of the year balance of common stock: $8,000 (assume that changes are related to issuance of common stock.)
• Beginning of the year balance of additional paid-in capital: $102,000
• Effective income tax rate: 35%
Objective:
• Understand the concepts of income, explain the conceptual guidelines for reporting income, and define the elements of an income statement.
• Classify the assets and liabilities of a balance sheet, explain the statement of changes in stockholders' equity, and describe the Security and Exchange Commission (SEC) integrated disclosures and the major components of an income statement, compute income from continuing operations, and report the results from discontinued operations.