(Multiple-Step and Single-Step Statements) The accountant of Latifa Shoe Co. has piled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2017.

Rent revenue \(29,000

Interest expense 18,000

Market appreciation on land above cost 31,000

Salaries and wages expense (selling) 114,800

Supplies (selling) 17,600

Income tax 37,400

Salaries and wages expense (administrative) \)135,900

Other administrative expenses 51,700

Cost of goods sold 496,000

Net sales 980,000

Depreciation on plant assets (70% selling, 30% administrative) 65,000

Cash dividends declared 16,000

There were 20,000 shares of common stock outstanding during the year.

Instructions

  1. Prepare a multiple-step income statement.
  2. Prepare a single-step income statement.
  3. (c) Which format do you prefer? Discuss.

Short Answer

Expert verified

The Net Income of Latifa Shoe Company is $86,900

Step by step solution

01

Meaning of Income Tax

An income tax refers to the obligatory payments made by any individuals, businesses, or corporations on the earnings earned.

02

Preparing Multiple-Step Income Statement

Latifa Shoe Company
Income Statement
For the Year Ended December 31, 2017

Net Sales

980,000

Cost of Goods Sold

496,000

Gross Profits

484,000

Operating Expenses

Administrative Expenses

Salaries and Wages Expense

135,900

Other Administrative Expenses

51,700

Depreciation on Plant and Assets

19,500

Total Administrative Expenses

207,100

Selling Expenses

Depreciation on Plant assets

45,500

Supplies Expense

17,600

Salaries and Wages expenses

114,800

Total Selling Expenses

177,900

Total Operating Expenses

385,000

Income From Operations

99,000

Other Revenues and Gains

Rent Revenue

29,000

Other Expenses and Losses

Interest Expense

18,000

Income before Income tax

110,000

Income Tax Expense

23,100

Net Income

86,900

Earnings per Share

$4.34

Working Note

  1. Calculation of Earnings per share

Earningspershare=NetIncome÷OutstandingCommonStock=$86,900÷20,000shares=$4.34

03

Preparing Single-Step Income Statement

Latifa Shoe Company
Income Statement
For the Year Ended December 31, 2017

Revenues

Net Sales

980,000

Rent Revenues

29,000

Total Revenues (A)

1,009,000

Expenses

Cost of Goods Sold

496,000

Selling Expenses

177,900

Administrative Expenses

207,100

Interest expenses

18,000

Total Expenses (B)

899,000

Income before Income taxes

110,000

Income tax expenses

23,100

Net Income

$86,900

Earnings per Share

$4.34

Working Note

  1. Calculation of Earnings per Share

Earningspershare=NetIncome÷Outstandingcommonstcok=$86,900÷20,000shares=$4.34

04

Explanation for format preference

Multiple-step income statement is always preferable because it provides an in-depth analysis of all the business activities for a particular period.

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Most popular questions from this chapter

Identify at least two situations in which important changes in value are not reported in the income statement.

Why should caution be exercised in the use of the net income figure derived in an income statement? What are the objectives of generally accepted accounting principles in their application to the income statement?

Using the information from BE4-9, prepare a retained earnings statement for the year ended December 31, 2017. Assume an error was discovered: land costing $80,000 (net of tax) was charged to maintenance and repairs expense in 2014.

The following account balances were included in the trial balance of Twain Corporation at June 30, 2017.

Sales revenue \(1,578,500

Depreciation expense (office furniture and equipment) \)7,250

Sales discounts \(31,150

Cost of goods sold \)896,770

Property tax expense \(7,320

Salaries and wages expense (sales) \)56,260

Bad debt expense (selling) \(4,850

Sales commissions \)97,600

Maintenance and repairs expense (administration) \(9,130

Travel expense (salespersons) \)28,930

Delivery expense \(21,400

Office expense \)6,000

Entertainment expense \(14,820

Sales returns and allowances \)62,300

Telephone and Internet expense (sales) \(9,030

Dividends received \)38,000

Depreciation expense (sales equipment) \(4,980

Interest expense \)18,000

Maintenance and repairs expense (sales) \(6,200

Income tax expense \)102,000

Miscellaneous selling expenses \(4,715

Depreciation understatement due to error—2014 (net of tax) \)17,700

Office supplies used \(3,450

Telephone and Internet expense (administration) \)2,820

Dividends declared on preferred stock \(9,000

Dividends declared on common stock \)37,000

The Retained Earnings account had a balance of $337,000 at July 1, 2016. There are 80,000 shares of common stock outstanding.

Instructions

(b) Using the single-step form, prepare an income statement and a retained earnings statement for the year ended June 30, 2017.

Question: O’Malley Corporation was incorporated and began business on January 1, 2017. It has been successful and now requires a bank loan for additional working capital to finance expansion. The bank has requested an audited income statement for the year 2017. The accountant for O’Malley Corporation provides you with the following income statement which O’Malley plans to submit to the bank.

O’MALLEY CORPORATION

INCOME STATEMENT

Sales revenue \(850,000

Dividends 32,300

Gain on recovery of insurance proceeds from

earthquake loss 38,500

920,800

Less:

Selling expenses \)101,100

Cost of goods sold 510,000

Advertising expense 13,700

Loss on obsolescence of inventories 34,000

Loss on discontinued operations 48,600

Administrative expense 73,400 780,800

Income before income tax 140,000

Income tax 56,000

Net income $84,000

Instructions

Indicate the deficiencies in the income statement presented above. Assume that the corporation desires a single-step income statement.

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