EX 6-23 Multiple-step income statement

On February 28, 2014, the balances of the accounts appearing in the ledger of Foldaway Furnishings Company, a furniture wholesaler, are as follows:


Accumulated Depreciation—Building $ 150,000 Notes Payable $ 400,000
Administrative Expenses 290,000 Office Supplies 20,000
Building 1,130,000 Salaries Payable 6,000
Cash 97,000 Sales 2,850,000
Cost of Merchandise Sold 1,641,000 Sales Discounts 25,000
Interest Expense 29,000 Sales Returns and Allowances 90,000
Lonnie Clemente, Capital 591,000 Selling Expenses 300,000
Lonnie Clemente, Drawing 50,000 Store Supplies 65,000
Merchandise Inventory 260,000

a. Prepare a multiple-step income statement for the year ended February 28, 2014.
b. Compare the major advantages and disadvantages of the multiple-step and single-step forms of income statements.


Answer:

a.
 FOLDAWAY FURNISHINGS COMPANY
Income Statement
For the Year Ended February 28, 2014
Revenue from sales:
Sales $2,850,000
Less: Sales returns and allow. $90,000
Sales discounts 25,000 115,000
Net sales $2,735,000
Cost of merchandise sold 1,641,000
Gross profit $1,094,000
Expenses:
Selling expenses $ 300,000
Administrative expenses 290,000
Total expenses 590,000
Income from operations $ 504,000
Other expense:
Interest expense 29,000
Net income $ 475,000


b. The major advantage of the multiple-step form of income statement is that relationships such as gross profit to sales are indicated. The major disadvantages are that it is more complex and the total revenues and expenses are not indicated, as is the case in the single-step income statement.