An inexperienced accountant prepared this condensed income s

An inexperienced accountant prepared this condensed income statement for Blossom Company, a retail firm that has been in business for a number of years BLOSSOM COMPANY Income Statement For the Year Ended December 31, 2017 Revenues $867,000 22,440 889,440 566,100 323,340 Net sales Other revenues Cost of goods sold Gross profit Operating expenses 111,180 105,060 216,240 $107,100 Selling expenses Administrative expenses Net earnings As an experienced, knowledgeable accountant, you review the statement and determine the following facts 1. Net sales consist of sales $929,220, less freight-out on merchandise sold $33,660, and sales 2. Other revenues consist of sales discounts $18,360 and rent revenue $4,080 returns and allowances $28,560 Selling expenses consist of salespersons\' salaries $81,600; depreciation on equipment $10,200; advertising $13,260; and sales commissions $6,120. The commissions represent commissions paid. At December 31, $3,060 of commissions have been earned by salespersons but have not been paid. All compensation should be recorded as Salaries and Wages Expense 3. 4. Administrative expenses consist of office salaries $47,940; dividends $18,360; utilities $12,240 interest expense $2,040; and rent expense $24,480, which includes prepayments totaling $6,120 for the first quarter of 2018 Prepare a correct detailed multiple-step income statement. Assume a 25% tax rate. (List other revenues before other expenses. Round answers to 0 decimal places, e.g. 5,125.)

Solution

Solution - Presentation of Multiple Income statement

Blossom Company

Income statement

For the year Ended December 31, 2017

Salary and wages ($81600 + $6120)

(Note 2)

Total Operating expenses (B)

($78540 + $144840)

Add : Non Operating Revenue

Rent Revenue

Less : Non Operating Expenses

Interest Expenses

Notes and Assumptions

1) Frieght out is part of operating expenses and frieght-in is part of cost of goods sold

2) Sales commission is $6120. As per question $3060 is not paid and is outstanding and hence $3060 is paid (assumed)

As per accrual concept of accounting, whether expenses paid ot outstanding if it is accrued then it will be recorded in the period to which it relates

Hence whole $6120 will be recorded as salary and wages

3) Prepaid rent expenses relate to the year 2018 hence $6120 will not be expensed out in 2017

4) Divided is part of retained earnings and is not considered in income statement.

Particulars		Amount
Sales Revenue		$929220
Less : Sales return and other allowances	$28560
Less : Sales Discounts	$18360	$46920
Net Sales		$882300
Less : Cost of goods sold		$566100
Gross Profit (A)		$316200
Less : Operating Expenses
Selling Expenses
Advertising	$13260
Frieght out (Note 1)	$33660
Depreciation on equipment	$10200
Salary and wages ($81600 + $6120) (Note 2)	$87720	$144840
Administrative expenses
Salary and wages	$47940
Utilities expenses	$12240
Rent expenses ($24480 - $6120) (Note 3)	$18360	$78540
Total Operating expenses (B) ($78540 + $144840)		$223380
Net Operating Income (A-B)		$92820
Add : Non Operating Revenue Rent Revenue		$4080
Less : Non Operating Expenses Interest Expenses		$2040
Net Income Before taxes		$94860
Tax Rate (25%)		$23715
Net Income		$71145