The following selected accounts and their current balances appear in the ledger of Kanpur Co. for the fiscal year ended June 30, 2019:
Cash $ 92,000 Gerri Faber, Drawing $ 300,000 Accounts Receivable 450,000 Sales 8,925,000 Merchandise Inventory 370,000 Cost of Merchandise Sold 5,620,000 Estimated Returns Inventory 5,000 Sales Salaries Expense 850,000 Office Supplies 10,000 Advertising Expense 420,000 Prepaid Insurance 12,000 Depreciation Expense — Office Equipment 220,000 Store Equipment 33,000 Accumulated Depreciation— Miscellaneous Selling Expense 18,000 Office Equipment 58,000 Office Salaries Expense 540,000 Store Equipment 650,000 Rent Expense 48,000 Accumulated Depreciation— Insurance Expense 24,000 Store Equipment 87,500 Depreciation Expense— Accounts Payable 38,500 Office Equipment 10,000 Customer Refunds Payable 10,000 Office Supplies Expense 4,000 Salaries Payable 4,000 Miscellaneous Administrative Exp. 6,000 Note Payable Interest Expense 12,000 (final payment due 2032) 140,000 Gerri Faber, Capital 431,000
Instructions
1. Prepare a multiple-step income statement.
2. Prepare a statement of owner’s equity.
3. Prepare a balance sheet, assuming that the current portion of the note payable is $7,000.
4. Briefly explain how multiple-step and single-step income statements differ.
Answer:
1.
Sales$8,925,000
Cost of merchandise sold5,620,000
Gross profit$3,305,000
Expenses:
Selling expenses:
Sales salaries expense $850,000
Advertising expense 420,000
Depreciation expense—store
equipment33,000
Miscellaneous selling expense 18,000
Total selling expenses$1,321,000
Administrative expenses:
Office salaries expense $540,000
Rent expense48,000
Insurance expense 24,000
Depreciation expense—office
equipment10,000
Office supplies expense 4,000
Miscellaneous administrative expense 6,000
Total administrative expenses 632,000
Total operating expenses1,953,000
Income from operations$1,352,000
Other expense:
Interest expense12,000
Net income$1,340,000
2.
Gerri Faber, capital, July 1, 2018$ 431,000
Net income for the year$1,340,000
Withdrawals(300,000)
Increase in owner’s equity1,040,000
Gerri Faber, capital, June 30, 2019$1,471,000
3.
Current assets:
Cash$ 92,000
Accounts receivable450,000
Merchandise inventory370,000
Estimated returns inventory5,000
Office supplies10,000
Prepaid insurance12,000
Total current assets$ 939,000
Property, plant, and equipment:
Office equipment $220,000
Less accumulated depreciation 58,000 $162,000
Store equipment $650,000
Less accumulated depreciation 87,500 562,500
Total property, plant, and equipment724,500
Total assets$1,663,500
Current liabilities:
Accounts payable$ 38,500
Customer refunds payable10,000
Salaries payable4,000
Note payable (current portion)7,000
Total current liabilities$ 59,500
Long-term liabilities:
Note payable (final payment due 2032)133,000
Total liabilities$ 192,500
Gerri Faber, capital1,471,000
Total liabilities and owner’s equity$1,663,500
4. The multiple-step form of income statement contains various sections for
revenues and expenses, with intermediate balances, and concludes with
net income. In the single-step form, the total of all expenses is deducted
from the total of all revenues. There are no intermediate balances.