Question

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.

SIMON COMPANY Income Statement For the Year Ended December 31, 2017
Revenues
Net sales	$850,000
Other revenues	22,000
	872,000
Cost of goods sold	555,000
Gross profit	317,000
Operating expenses
Selling expenses	109,000
Administrative expenses	103,000
	212,000
Net earnings	$105,000

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 1000 words. Assume a 25% tax rate.

Answer 1

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