Question

Exercise 4-5 Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2017 information related to Pearl Company ($000 omitted). Administrative expense Officers' salaries $5,076 Depreciation of office furniture and equipment 4,136 Cost of goods sold 60,746 Rent revenue 17,406 Selling expense Delivery expense 2,866 Sales commissions 8,156 Depreciation of sales equipment 6,656 Sales revenue 96,676 Income tax 9,246 Interest expense 2,036 Common shares outstanding for 2017 total 40,550 (000 omitted). Prepare an income statement for the year 2017 using the multiple-step form. (Round earnings per share to 2 decimal places, e.g. 1.48.) PEARL COMPANY Income Statement (In thousands, except earnings per share) $ $ $ $ $ Show List of Accounts Link to Text Link to Text Prepare an income statement for the year 2017 using the single-step form. (Round earnings per share to 2 decimal places, e.g. 1.48.) PEARL COMPANY Income Statement (In thousands, except earnings per share) $ $ $ Click if you would like to Show Work for this question: Open Show Work

Answer 1

Solution:

Pearl Company
Multiple step income statement
For year ended 2017
Particulars		Amount (In'000)
Sales revenue		$96,676.00
Cost of goods sold		$60,746.00
Gross Profit		$35,930.00
Administrative expenses:
Officer's Salary	$5,076.00
Depreciation of office furniture and equipment	$4,136.00	$9,212.00
Selling Expenses:
Delivery Expense	$2,866.00
Sales commissions	$8,156.00
Depreciation on sales equipment	$6,656.00	$17,678.00
Operating income		$9,040.00
Add: Rental revenue		$17,406.00
Earning before interest and taxes		$26,446.00
Less: Interest expense		$2,036.00
Earning before taxes		$24,410.00
Income tax expense		$9,246.00
Net Income		$15,164.00
Earning per share ($15,164/40550)		$0.37

Pearl Company
Single step income statement
For year ended 2017
Particulars	Amount (In'000)
Revenues:
Sales revenue	$96,676.00
Rent revenue	$17,406.00
Total revenues	$114,082.00
Expenses:
Cost of goods sold	$60,746.00
Officer's Salary	$5,076.00
Depreciation of office furniture and equipment	$4,136.00
Delivery Expense	$2,866.00
Sales commissions	$8,156.00
Depreciation on sales equipment	$6,656.00
Interest expense	$2,036.00
Income tax expense	$9,246.00
Total Expenses	$98,918.00
Net Income	$15,164.00
Earning per share ($15,164/40550)	$0.37