The accountant of Weatherspoon Shoe Co. has compiled the following information f
ID: 2387952 • Letter: T
Question
The accountant of Weatherspoon Shoe Co. has compiled the following information from the company's records as a basis for an income statement for the year ended December 31, 2010.Rental revenue $29,000
Interest expense 18,000
Market appreciation on land above cost 31,000
Wages and salaries-sales 114,800
Materials and supplies-sales 17,600
Income tax 30,600
Wages and salaries-administrative 135,900
Other administrative expenses 51,700
Cost of goods sold 516,000
Net sales 980,000
Depreciation on plant assets (70% selling, 30% administrative) 65,000
Dividends declared 16,000
There were 20,000 shares of common stock outstanding during the year.
(a) Prepare a multiple-step income statement. (Round earnings per share to 2 decimal places, e.g. 5.25. For multiple entries list from largest to smallest amounts, e.g. 10, 5, 1. Enter all amounts as positive amounts and subtract where necessary.)
Explanation / Answer
(a) Multiple-Step Form
Whitney Houston Shoe Co.
Income Statement
For the Year Ended December 31, 2007
Net sales.............................................................................
$980,000
Cost of goods sold.............................................................
496,000
Gross profit on sales.........................................................
484,000
Operating Expenses
Selling expenses
Wages and salaries...............................................
$114,800
Depr. exp. (70% X $65,000)................................
45,500
Materials and supplies..........................................
17,600
$177,900
Administrative expenses
Wages and salaries...............................................
135,900
Other admin. expenses.........................................
51,700
Depr. exp. (30% X $65,000)................................
19,500
207,100
385,000
Income from operations...................................................
99,000
Other Revenues and Gains
Rental revenue............................................................
29,000
128,000
Other Expenses and Losses
Interest expense..........................................................
18,000
Income before income tax................................................
110,000
Income tax...................................................................
37,400
Net income.........................................................................
$ 72,600
Earnings per share ($72,600 ÷ 20,000)...........................
$3.63
(b) Single-Step Form
Whitney Houston Shoe Co.
Income Statement
For the Year Ended December 31, 2007
Revenues
Net sales.....................................................................................................
$ 980,000
Rental revenue..........................................................................................
29,000
Total revenues.....................................................................................
1,009,000
Expenses
Cost of goods sold.....................................................................................
496,000
Selling expenses.........................................................................................
177,900
Administrative expenses...........................................................................
207,100
Interest expense........................................................................................
18,000
Total expenses.....................................................................................
899,000
Income before income tax..............................................................................
110,000
Income tax.................................................................................................
37,400
Net income.......................................................................................................
$ 72,600
Earnings per share ($72,600 ÷ 20,000).........................................................
$3.63
Note: An alternative income statement format for the single-step form is to show income tax as part of expense, and not as a separate item.
(c)
Single-step:
1. Simplicity and conciseness.
2. Probably better understood by users.
3. Emphasis on total costs and expenses and net income.
4. Does not imply priority of one revenue or expense over another.
Multiple-step:
1. Provides more information through segregation of operating and nonoperating items.
2. Expenses are matched with related revenue.
(a) Multiple-Step Form
Whitney Houston Shoe Co.
Income Statement
For the Year Ended December 31, 2007
Net sales.............................................................................
$980,000
Cost of goods sold.............................................................
496,000
Gross profit on sales.........................................................
484,000
Operating Expenses
Selling expenses
Wages and salaries...............................................
$114,800
Depr. exp. (70% X $65,000)................................
45,500
Materials and supplies..........................................
17,600
$177,900
Administrative expenses
Wages and salaries...............................................
135,900
Other admin. expenses.........................................
51,700
Depr. exp. (30% X $65,000)................................
19,500
207,100
385,000
Income from operations...................................................
99,000
Other Revenues and Gains
Rental revenue............................................................
29,000
128,000
Other Expenses and Losses
Interest expense..........................................................
18,000
Income before income tax................................................
110,000
Income tax...................................................................
37,400
Net income.........................................................................
$ 72,600
Earnings per share ($72,600 ÷ 20,000)...........................
$3.63
(b) Single-Step Form
Whitney Houston Shoe Co.
Income Statement
For the Year Ended December 31, 2007
Revenues
Net sales.....................................................................................................
$ 980,000
Rental revenue..........................................................................................
29,000
Total revenues.....................................................................................
1,009,000
Expenses
Cost of goods sold.....................................................................................
496,000
Selling expenses.........................................................................................
177,900
Administrative expenses...........................................................................
207,100
Interest expense........................................................................................
18,000
Total expenses.....................................................................................
899,000
Income before income tax..............................................................................
110,000
Income tax.................................................................................................
37,400
Net income.......................................................................................................
$ 72,600
Earnings per share ($72,600 ÷ 20,000).........................................................
$3.63
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