Prepare a multiple-step income statement. The following selected information is
ID: 2518505 • Letter: P
Question
Prepare a multiple-step income statement.
The following selected information is for Carla Vista Company for the year ended January 31, 2017:Freight in $6,500 Purchase discounts $12,000 Freight out 7,000 Purchase returns and allowances 16,400 Insurance expense 12,000 Rent expense 20,200 Interest expense 6,000 Salaries expense 60,800 Merchandise inventory, beginning 61,200 Salaries payable 2,500 Merchandise inventory, ending 42,000 Sales 322,000 O. G. Pogo, capital 105,000 Sales discounts 14,000 O. G. Pogo, drawings 42,500 Sales returns and allowances 20,100 Purchases 210,000 Unearned sales revenue 4,500
Explanation / Answer
Carla Vista Company
Income statement
For the year ended Jan 31, 2017
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Sales $ 283400
Cost of Goods Sold $ 207300
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Gross Profit $ 76100
Opreating Expenses
Selling Expenses
Freight Out $ 7000
Administrative Expenses
Insurance Exp $ 12000
Rent $ 20200
Salary $ 60800 $ 100000
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Oprating Income $ (23900)
Non Opreting
Interest Exp $ 6000
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Net Income $ ( 29900)
Step 1
Gross Profit = Net Sales - COGS
Net Sales = Sales - Sales discount- Sales return- unearned sales revenue (treated as not adjusted if treat as adjusted then only shown in balance sheet not to be deducted from sales)
= 322000 -14000-20100-4500 =283400
COGS = Opening inventory + net purchase ( purchase - purchase discount -purchase return) + freight In - closing inventory
= 61200+ 181600 ( 210000-12000-16400) +6500 -42000 = 207300
Step 2
Opreting Income = Gross Profit - Opreting Exp
= $ 76100 - $ 100000 = $ (23900)
Note: Salary Payable treated as adjusted in salary so not added again if treated not adjusted added in salary expenses and accordingly profit will changed.
Step 3
Net Income = Opreting income - Non opreting exp + Non opreting income
= $ ( 23900) - $ 6000( Int Exp)
= $ 29900