Question

Problems P4-1 Multiple-step income statement and report form of balance sheet The following selected accounts and their current balances appear in the ledger of Aqua Co for the fiscal year ended June 30, 20Y8 $ 83,500 $3,625,000 Cash Sales Accounts Receivable Sales Returns and Allowances 150,000 37,800 Merchandise Inventory Office Supplies Sales Discounts 380,000 20,200 Cost of Merchandise Sold 15,000 2,175,000 Prepaid Insurance 12,000 Sales Salaries Expense 388,800 Office Equipment Accumulated Depreciation 115,200 Advertising Expense Depreciation Expense Store Equipment Miscellaneous Selling Expense 45,900 Office Equipment 49,500 8,300 Store Equipment 511,500 2,000 Accumulated Depreciation Office Salaries Expense Rent Expense 77,400 39,900 Store Equipment 186,700 Insurance Expense Accounts Payable 48,600 22,950 Salaries Payable 9,600 Depreciation Expense- Office Equipment Note Payable 16,200 Office Supplies Expense (final payment due in five years) Capital Stock Retained Earnings 54,000 1,650 Miscellaneous Administrative 15,000 Expense Interest Expense 253,800 1,900 Dividends 125,000 12,000 Instructions 1. Prepare a multiple-step income statement 2. Prepare a retained earnings statement. 3. Prepare a report form of balance sheet, assuming that the current portion of the note pay able is $8,000. 4 Briefly explain (a) how multiple-step and single-step income statements differ and (b) how report-form and account-form balance sheets differ.

Answer 1

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Part 1
Revenue from sales:
Sales			$     3,625,000
Less: Sales returns and allowances		$       37,800
Sales discounts		$       20,200	$         (58,000)
Net sales			$     3,567,000
Cost of merchandise sold			$   (2,175,000)
Gross profit			$     1,392,000
Operating expenses:
Selling expenses:
Sales salaries expense	$       388,800
Advertising expense	$         45,900
Depreciation expense—store Equpment	$            8,300
Miscellaneous selling expense	$            2,000
Total selling expenses		$     445,000
Administrative expenses:
Office salaries expense	$         77,400
Rent expense	$         39,900
Insurance expense	$         22,950
Depreciation expense—office Equipment	$         16,200
Office supplies expense	$            1,650
Miscellaneous administrative expense	$            1,900
Total administrative expenses		$     160,000
Total operating expenses			$      (605,000)
Income from operations			$         787,000
Other expense:
Interest expense			$         (12,000)
Net income			$         775,000
Part 2
Retained earnings, Beginning		$     253,800
Net income for the year	$       775,000
Less dividends	$     (125,000)
Increase in retained earnings		$     650,000
Retained earnings, Ending		$     903,800
Part 3
Assets
Current assets:
Cash			$           83,500
Accounts receivable			$         150,000
Merchandise inventory			$         380,000
Office supplies			$           15,000
Prepaid insurance			$           12,000
Total current assets			$         640,500
Property, plant, and equipment:
Office equipment	$       115,200
Less accumulated depreciation	$       (49,500)	$       65,700
Store equipment	$       511,500
Less accumulated depreciation	$     (186,700)	$     324,800
Total property, plant, and equipment			$         390,500
Total assets			$     1,031,000
Liabilities
Current liabilities:
Accounts payable			$           48,600
Note payable (current portion)			$             8,000
Salaries payable			$             9,600
Total current liabilities			$           66,200
Long-term liabilities:
Note payable (final payment due 20Y3)			$           46,000
Total liabilities			$         112,200
Stockholders’ Equity
Capital stock		$       15,000
Retained earnings		$     903,800
Total stockholders’ equity			$         918,800
Total liabilities and stockholders’ equity			$     1,031,000
Part 4a
The multiple-step form of income statement contains various sections for revenues and expenses, with intermediate balances, and concludes with net income.
In the single-step form, the total of all expenses is deducted from the total of all revenues. There are no intermediate balances.
Part 4b
In the report form of balance sheet, the assets, liabilities, and stockholders’ equity are presented in that order in a downward sequence.
In the account form, the assets are listed on the left-hand side, and the liabilities and stockholders’ equity are listed on the right-hand side.