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Goal: Practice creating a multi-step income statement in good form. Information: Management would like you to create TerrysTerry Co. Adjusted Trial Balance As of 12/31/Year 2 Account Balance Cash A/R Allowance for Doubtful Accounts Inventory PrepaiSales Discounts Sales Returns Cost of Goods Sold Advertising Expense Bad Debt Expense Depreciation Expense Executive Salaries

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Answer #1
1) Multi-step income statement:
Amount $
Sales revenue 17000000
Less:Sales discount 204000
Less:Sales returns 807500
Net Sales revenue 15988500
Less: Cost of Goods Sold 9305099
Gross Profit 6683401
Less:Selling Expenses:
Advertising expense 318750
Bad Debt Expense 22100
sales Force Salaries exp. 233750
Selling commissions exp. 850000
Shipping expense 139188
Misc. Selling Exp. 82875
Total Selling Expenses 1646663
Income before Admin expenses 5036738
Less:Administration Expenses:
Depreciation exp. 1020000
Executive Salaries exp. 743750
Insurance expense 84125
Office Supplies exp. 65875
Legal and consulting exp. 10625
Utilities exp. 127500
Misc. Admin exp. 8394
Total Admin Expenses 2060269
Income before Finance cost 2976469
Less:Interest exp. 108375
Income before other income 2868094
Add:Rent revenue 53125
Income before Tax 2921219
Less:Income Tax Exp. 876366
Net Income 2044853
2) Profit Margin = NI/Net Sales = 2044853/15988500 = 12.79%
Earnings per Share = NI/Com. Shares O/s = 2044853/200000 = $10.22 per share
(assuming Par Value of the Common Share being $10, so Number of Shares=
$2000000/10 = 200000 shares)
3) Closing entries:
Date Accounts Title Debit $ Credit $
12/31/Year 2 Sales revenue 17000000
Rent revenue 53125
Income Summary 17053125
(revenues transferred to Income summary)
12/31/Year 2 Income Summary 15008272
Sales discount 204000
Sales returns 807500
Cost of Goods Sold 9305099
Advertising expense 318750
Bad Debt Expense 22100
sales Force Salaries exp. 233750
Selling commissions exp. 850000
Shipping expense 139188
Misc. Selling Exp. 82875
Depreciation exp. 1020000
Executive Salaries exp. 743750
Insurance expense 84125
Office Supplies exp. 65875
Legal and consulting exp. 10625
Utilities exp. 127500
Misc. Admin exp. 8394
Interest exp. 108375
Income Tax Exp. 876366
(being expenses transferred to Income summary)
12/31/Year 2 Income Summary 2044853
Net Income 2044853
(Income summary balance transferred to Net Income)
12/31/Year 2 Net Income 2044853
Retained Earnings 2044853
(Net Income transferred to Retained Earnings)
12/31/Year 2 Retained Earnings 270000
Dividends 270000
(Dividend paid transferred to retained earnings)
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