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Chapter 5: Q5-5TI (page 271)

Question: Capital City Motorcycle’s selected accounts as of December 31, 2018, follow:

Selling Expenses $ 10,500

Interest Revenue 1,000

Net Sales Revenue 113,500

Cost of Goods Sold 85,000

Administrative Expenses 8,000

Prepare the multi-step income statement for the year ended December 31, 2018.

Short Answer

Expert verified

The net income of the company is $11,000.

Step by step solution

01

Meaning of Multi-step Income Statement

A multi-step income statement refers to a report that bifurcates the business's operational and non-operational activities. The operating section reports the core events of the company, and the non-operating section captures the secondary events.

02

Preparation of multi-step income statement

In the books of Capital City Motorcycle

Multi-step Income Statement

For the year ended December 31, 2018

Particulars

Amounts ($)

Net sales revenue

113,500

Less: Cost of goods sold

(85,000)

Gross profit

28,500

Operating expenses

Less: Selling expenses

(10,500)

Less: Administrative expenses

(8,000)

Income from operations

10,000

Other revenues and gains

Add: Interest revenue

1,000

Net income

11,000

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Most popular questions from this chapter

The records of Farm Quality Steak Company list the following selected accounts for the quarter ended April 30, 2018:

Interest Revenue \( 400 Accounts Payable \) 17,700

Merchandise Inventory 45,000 Accounts Receivable 38,200

Notes Payable, long-term 54,000 Accumulated Depreciation—Equipment 37,700

Salaries Payable 2,800 Common Stock 30,000

Net Sales Revenue 298,000 Retained Earnings 5,380

Rent Expense (Selling) 15,100 Dividends 25,000

Salaries Expense (Administrative) 2,000 Cash 7,100

Office Supplies 6,500 Cost of Goods Sold 154,960

Unearned Revenue 13,100 Equipment 132,000

Interest Expense 2,100 Interest Payable 1,700

Depreciation Expense—Equipment (Administrative) 1,320

Rent Expense (Administrative) 7,100

Utilities Expense (Administrative) 4,600 Salaries Expense (Selling) 6,000

Delivery Expense (Selling) 3,800 Utilities Expense (Selling) 10,000

Requirements

1. Prepare a single-step income statement.

2. Prepare a multi-step income statement.

3. M. Doherty, manager of the company, strives to earn a gross profit percentage of at least 50%. Did Farm Quality achieve this goal? Show your calculations

Camilia Communications reported the following figures from its adjusted trial balance for its first year of business, which ended on July 31, 2018:

Cash \( 2,900 Cost of Goods Sold \) 18,700

Selling Expenses 1,400 Equipment, net 9,500

Accounts Payable 4,300 Accrued Liabilities 1,800

Common Stock 4,365 Net Sales Revenue 29,200

Notes Payable, long-term 500 Accounts Receivable 3,200

Merchandise Inventory 1,100 Interest Expense 65

Administrative Expenses 3,300

Requirements

1. Prepare Camilia Communication’s statement of retained earnings for the year ended July 31, 2018. Assume that there were no dividends declared during the year and that the business began on August 1, 2017.

2. Prepare Camilia Communication’s classified balance sheet at July 31, 2018. Use the report format.

Match the accounting terms with the corresponding definitions.

1. Credit Terms a. The cost of the merchandise inventory that the business has sold to customers.

2. FOB Destination b. An amount granted to the purchaser as an incentive to keep goods that are not “as ordered.”

3. Invoice c. A type of merchandiser that buys merchandise either from a manufacturer or a wholesaler and then sells those goods to consumers.

4. Cost of Goods Sold d. A situation in which the buyer takes ownership (title) at the delivery destination point.

5. Purchase Allowance e. A type of merchandiser that buys goods from manufacturers and then sells them to retailers.

6. FOB Shipping Point f. A discount that businesses offer to purchasers as an incentive for early payment.

7. Wholesaler g. A situation in which the buyer takes title to the goods after the goods leave the seller’s place of business.

8. Purchase Discount h. The terms of purchase or sale as stated on the invoice.

9. Retailer i. A seller’s request for cash from the purchaser.

Journalize the following sales transactions for Sanborn Camera Store using the periodic inventory system. Explanations are not required.

Dec. 3, Sanborn sold $41,900 of camera equipment on the account; credit terms are 3/15, n/EOM.

17 Sanborn receives payment from the customer on the amount due to less the discount.

What are the two types of merchandisers? How do they differ?
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