Scenario: an inexperienced accountant prepared this condensed income

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 StatementFor 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.

Show your work on the Excel® spreadsheet and submit with your explanation.

Purpose of Assignment

The purpose of this assignment is to help you become familiar with the parts of the multiplestep income statement.

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