28 Jul SCENARIO:AN INEXPERIENCED ACCOUNTANT PREPARED
Scenario:An inexperienced accountant prepared this condensed income statement for Simon Company, a retail firm that has been in business for a number of years.SIMON COMPANYIncome StatementFor the Year Ended December 31, 2017RevenuesNet sales$850,000Other revenues22,000872,000Cost of goods sold555,000Gross profit317,000Operating expensesSelling expenses109,000Administrative expenses103,000212,000Net earnings$105,000As an experienced, knowledgeable accountant, you review the statement and determine the following facts:Net sales consist of: sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000.Other revenues consist of sales discounts $18,000 and rent revenue $4,000.Selling expenses consist of salespersons’ salaries $80,000, depreciation on equipment $10,000, advertising $13,000, and sales commissions $6,000. The commissions represent commissions paid. At December 21, $3,000 of commissions have been earned by salespersons but have not been paid. All compensation should be recorded as Salaries and Wages Expense.Administrative expenses consist of office salaries $47,000, dividends $18,000, utilities $12,000, interest expense $2,000, and rent expense $24,000, which includes prepayments totaling $6,000 for the first quarter of 2018.Prepare a detailed multi-step income statement with a brief explanation of 700 words. Assume a 25% tax rate.NameSectionDate Chris HebertWK38/15/2017 Problem 5-5ASimon Company SIMON COMPANYIncome StatementFor the Year Ended December 31, 2017SalesSales revenueLess: Sales return and allowancesSales discountsNet salesCost of goods soldGross profitOperating expensesSalaries and wage expenseAdvertisingFreight-outUtilitiesDepreciation expenseRent expenseTotal operating expenseIncome from operationsOther revenues and gainsRent revenueOther expenses and lossesInterest expenseIncome before taxesIncome tax expenseNet income $911,000$28,00018,000 46,000865,000555,000310,000 106,00013,00033,00012,00010,00018,000192,000118,0004,0002,000120,00030,00090,000 289 289
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