Preparing a Multiple-Step Income Statement

Purpose of Assignment - The purpose of this assignment is to help you become familiar with the parts of the multiple-step income statement.

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 around 700 wrds Assume a 25% tax rate.