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 700 words. Assume a 25% tax rate.

Name
Section
Date Chris Hebert
WK3
8/15/2017 Problem 5-5A
Simon Company SIMON COMPANY
Income Statement
For the Year Ended December 31, 2017
Sales
Sales revenue
Less: Sales return and allowances
Sales discounts
Net sales
Cost of goods sold
Gross profit
Operating expenses
Salaries and wage expense
Advertising
Freight-out
Utilities
Depreciation expense
Rent expense
Total operating expense
Income from operations
Other revenues and gains
Rent revenue
Other expenses and losses
Interest expense
Income before taxes
Income tax expense
Net income $911,000
$28,000
18,000 46,000
865,000
555,000
310,000 106,000
13,000
33,000
12,000
10,000
18,000
192,000
118,000
4,000
2,000
120,000
30,000
90,000 289 289