On March 31, 2019, the balances of the accounts appearing in the ledger of Racine Furnishings Company, a furniture wholesaler, are as follows:
Accumulated Depreciation—Building $ 300,000
Merchandise Inventory $ 392,000
Administrative Expenses 216,000
Notes Payable 100,000
Building 1,000,000
Office Supplies 8,000
Cash 70,000
Salaries Payable 3,200
Cost of Merchandise Sold 1,520,000
Sales 2,564,000
Interest Expense 4,000
Selling Expenses 286,000
Kathy Melman, Capital 634,800
Store Supplies 36,000
Kathy Melman, Drawing 70,000
a. Prepare a multiple-step income statement for the year ended March 31, 2019.
b. Compare the major advantages and disadvantages of the multiple-step and single-step forms of income statements.
Answer:
a.
Sales$2,564,000
Cost of merchandise sold1,520,000
Gross profit$1,044,000
Expenses:
Selling expenses$286,000
Administrative expenses216,000
Total expenses502,000
Income from operations$ 542,000
Other expense:
Interest expense4,000
Net income$ 538,000
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.