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30 Jul 2019

E4-9 Multiple-step income statement:

In October 31, 20Y5, the balances of the accounts appearing inthe ledger of Quality Interiors Company, a furniture wholwsaler,are as follows:

Administrative expenses $600,000 Office supplies $5,000

building $2,000,000 retained earnings $903,000

capital stock $300,000 salaries payable $12,000

cash $175,000 sales $5,000,000

cost of merchandise sold $2,500,000 Sales discounts $400,000

dividends $20,000 sales returns and allowances $100,000

interest expense $50,000 selling expenses $850,000

merchandise inventory $400,000 store supplies $15,000

notes payable $900,000

Instructions:

a. Prepare a multiple-step income statement forthe year ended October 31, 20Y5.

b. Compare the major advantages anddisadvantages of the multiple-step and single-step forms.

Income statement for merchandiser:

For the fiscal year, sales were $12,140,000, sales discountswere $250,000, sales returns and allowances were $80,000, and costof merchandise sold was $7,000,000.

Instructions:

a. What was the amount of net sales?

b. What was the amount of gross profit?

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Nestor Rutherford
Nestor RutherfordLv2
1 Aug 2019

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Unadjusted Trial Balance
Cash 7,400
Merchandise inventory 24,000
Store supplies 9,700
Prepaid insurance 6,600
Store equipment 81,800
Accumulated depreciation-Store Equipment 32,000
Accounts payable 18,000
Common Stock 3,000
Retained earnings 40,000
Dividends 2,000
Sales 227,100
Sales Discounts 1,000
Sales returns and allowances 5,000
Cost of goods sold 75,800
Depreciation expense-Store equipment 0
Salariers expense 63,000

Insurance expense

 0
Rent Expense 26,000
Store supplies expense 0
Advertising expense 17,800
Totals 320,100 320,100

1. Prepare adjusted journal entries to reflect each of thefollowing.

a. Store supplies still available at fiscal year-end amount to3,700.

b. Expired insurance, an administrative expense, for th fiscalyear is 2,800

c. Depreciation expense on store equipment, a selling expense,is 3,000 for a fiscal year.

d. To estimate shrinkage, a physical count of ending merchandiseinventory is taken. It shows 21,300 of inventory is still availableat fiscal year end.

2. Prepare a multiple step indome statement for fiscal year2013. Check in book says Gross profit should be142,600

3. Prepare a single- step income statement of fiscal year 2013.Check in book Says Total expenses, 197,100 and Net Income,24,000

4. Compute the current ratio, acid- test ratio, and gross marginratio as of October 31, 2013.

2. After all of the transactions for the year ended December 31,2016, had been posted [including the transactions recorded in part(1) and all adjusting entries], the data that follows were takenfrom the records of Equinox Products Inc.
A. Prepare a multiple-step income statement for the year endedDecember 31, 2016, concluding with earnings per share. In computingearnings per share, assume that the average number of common sharesoutstanding was 100,000 and preferred dividends were $100,000.(Round earnings per share to the nearest cent.)*
B. Prepare a retained earnings statement for the year endedDecember 31, 2016.*
C. Prepare a balance sheet in report form as of December 31, 2016.*
* Read the instructions above each financial statement carefully.They may contain specific instructions for completing thestatement.

Income Statement data:
Advertising expense $ 150,000
Cost of merchandise sold 3,700,000
Delivery expense 30,000
Depreciation expense-office buildings and equipment 30,000
Depreciation expense-store buildings and equipment 100,000
Dividend revenue 4,500
Gain on sale of investments 4,980
Income from Pinkberry Co. investment 76,800
Income tax expense 140,500
Interest expense 21,000
Interest revenue 2,720
Miscellaneous administrative expense 7,500
Miscellaneous selling expense 14,000
Office rent expense 50,000
Office salaries expense 170,000
Office supplies expense 10,000
Sales 5,254,000
Sales commissions 185,000
Sales salaries expense 385,000
Store supplies expense 21,000

Retained earnings and balance sheet data:
Accounts payable $ 194,300
Accounts receivable 545,000
Accumulated depreciation—office buildings and equipment 1,580,000
Accumulated depreciation—store buildings and equipment 4,126,000
Allowance for doubtful accounts 8,450
Available-for-sale investments (at cost) 260,130
Bonds payable, 5%, due 2024 500,000
Cash 246,000
Common stock, $20 par
(400,000 shares authorized; 100,000 shares issued, 94,600outstanding) 2,000,000
Dividends:
Cash dividends for common stock 155,120
Cash dividends for preferred stock 100,000
Goodwill 500,000
Income tax payable 44,000
Interest receivable 1,125
Investment in Pinkberry Co. stock (equity method) 1,009,300
Investment in Dream Inc. bonds (long term) 90,000
Merchandise inventory (December 31, 2016),
at lower of cost (FIFO) or market 778,000
Office buildings and equipment 4,320,000
Paid-in capital from sale of treasury stock 13,000
Excess of issue price over par:
-Common 886,800
-Preferred 150,000
Preferred 5% stock, $80 par
(30,000 shares authorized; 20,000 shares issued) 1,600,000
Premium on bonds payable 19,000
Prepaid expenses 27,400
Retained earnings, January 1, 2016 9,319,725
Store buildings and equipment 12,560,000
Treasury stock
(5,400 shares of common stock at cost of $33 per share) 178,200
Unrealized gain (loss) on available-for-sale investments (6,500)
Valuation allowance for available-for-sale investments (6,500)
2.
A. Prepare a multiple-step income statement for the year endedDecember 31, 2016, concluding with earnings per share. In computingearnings per share, assume that the average number of common sharesoutstanding was 100,000 and preferred dividends were $100,000.(Round earnings per share to the nearest cent.)
• Refer to the Chart of Accounts for exact wording of accounttitles.
•

Refer to the Labels and Amount Descriptions for exact wording oftext entries.

B. Prepare a retained earnings statement for the year endedDecember 31, 2016.
• Refer to the Chart of Accounts for exact wording of accounttitles.
• Refer to the Labels and Amount Descriptions for exact wordingof text entries.
• You will need to enter the word “Less” or “Add” asnecessary.
C. Prepare a balance sheet in report form as of December 31, 2016.You are not required to present the details of Preferred and CommonStock (i.e., number of shares authorized, issued and outstanding).
• Refer to the Chart of Accounts for exact wording of accounttitles.
• Refer to the Labels and Amount Descriptions for exact wordingof text entries.
• “Less” , “Deduct”, “Add” and colons will appearautomatically.
• Available-for-sale investments should be reported as a singleasset on the balance sheet, regardless of how many accounts existin the ledger for such assets.
• Recall that current assets are to be reported in order ofliquidity. Available-for-sale investments are considered to be moreliquid that accounts receivable.
• Report fixed assets and paid-in capital accounts inaccount-number order.
• Omit the description of bonds and stocks (i.e., percentagerates, due date, number of shares, etc.)
• Enter all amounts as positive numbers, with one exception: Ifan unrealized loss has occurred, it must be reported as a negativeamount on the balance sheet.
Labels

In CengageNOW, a Label is a text entry that does not have anamount associated with it.
Current assets
Current liabilities
December 31, 2016
For the Year Ended December 31, 2016
Intangible assets
Investments
Less dividends
Long-term liabilities
Operating expenses
Other income and expenses
Paid-in capital
Add dividends
Property, plant, and equipment
Amount Descriptions

In CengageNOW, an Amount Description is a text entry other thanan Account that has an amount associated with it.
Available-for-sale investments
Decrease in retained earnings
Excess of issue price over par
Gross profit
Income before income tax
Income from operations
Increase in retained earnings
Miscellaneous selling expense
Net income
Net loss
Retained earnings, January 1, 2016
Retained earnings, December 31, 2016
Sales commissions
Sales salaries expense
Store supplies expense
Total administrative expenses
Total assets
Total (before treasury stock)
Total current assets
Total current liabilities
Total liabilities
Total liabilities and stockholders’ equity
Total long-term liabilities
Total investments
Total operating expenses
Total paid-in capital
Total property, plant, and equipment
Total selling expenses
Total stockholders’ equity
Unamortized premium

Unamortized discount

Income Statement data:
Advertising expense $ 150,000
Cost of merchandise sold 3,700,000
Delivery expense 30,000
Depreciation expense-office buildings and equipment 30,000
Depreciation expense-store buildings and equipment 100,000
Dividend revenue 4,500
Gain on sale of investments 4,980
Income from Pinkberry Co. investment 76,800
Income tax expense 140,500
Interest expense 21,000
Interest revenue 2,720
Miscellaneous administrative expense 7,500
Miscellaneous selling expense 14,000
Office rent expense 50,000
Office salaries expense 170,000
Office supplies expense 10,000
Sales 5,254,000
Sales commissions 185,000
Sales salaries expense 385,000
Store supplies expense 21,000

Retained earnings and balance sheet data:
Accounts payable $ 194,300
Accounts receivable 545,000
Accumulated depreciation—office buildings and equipment 1,580,000
Accumulated depreciation—store buildings and equipment 4,126,000
Allowance for doubtful accounts 8,450
Available-for-sale investments (at cost) 260,130
Bonds payable, 5%, due 2024 500,000
Cash 246,000
Common stock, $20 par
(400,000 shares authorized; 100,000 shares issued, 94,600outstanding) 2,000,000
Dividends:
Cash dividends for common stock 155,120
Cash dividends for preferred stock 100,000
Goodwill 500,000
Income tax payable 44,000
Interest receivable 1,125
Investment in Pinkberry Co. stock (equity method) 1,009,300
Investment in Dream Inc. bonds (long term) 90,000
Merchandise inventory (December 31, 2016),
at lower of cost (FIFO) or market 778,000
Office buildings and equipment 4,320,000
Paid-in capital from sale of treasury stock 13,000
Excess of issue price over par:
-Common 886,800
-Preferred 150,000
Preferred 5% stock, $80 par
(30,000 shares authorized; 20,000 shares issued) 1,600,000
Premium on bonds payable 19,000
Prepaid expenses 27,400
Retained earnings, January 1, 2016 9,319,725
Store buildings and equipment 12,560,000
Treasury stock
(5,400 shares of common stock at cost of $33 per share) 178,200
Unrealized gain (loss) on available-for-sale investments (6,500)
Valuation allowance for available-for-sale investments (6,500)

none

X

Chart of Accounts

CHART OF ACCOUNTS
Equinox Products Inc.
General Ledger
ASSETS
110 Cash
121 Accounts Receivable
122 Allowance for Doubtful Accounts
131 Merchandise Inventory
132 Interest Receivable
133 Prepaid Expenses
141 Investments-Solstice Corp.
142 Investment in Pinkberry Co. Stock
143 Investment in Dream Inc. Bonds
144 Valuation Allowance for Available-for-Sale Investments
181 Store Buildings and Equipment
182 Accumulated Depreciation-Store Buildings and Equipment
183 Office Buildings and Equipment
184 Accumulated Depreciation-Office Buildings and Equipment
191 Goodwill
LIABILITIES
211 Accounts Payable
221 Income Tax Payable
225 Cash Dividends Payable
251 Bonds Payable
252 Discount on Bonds Payable
253 Premium on Bonds Payable
EQUITY
311 Preferred Stock
312 Paid-in Capital in Excess of Par-Preferred Stock
321 Common Stock
322 Paid-in Capital in Excess of Par-Common Stock
331 Retained Earnings
341 Cash Dividends
351 Treasury Stock
352 Paid-in Capital from Sale of Treasury Stock
361 Unrealized Gain (Loss) on Available-for-Sale Investments
REVENUE
410 Sales
611 Dividend Revenue
621 Interest Revenue
631 Income from Pinkberry Co.
641 Gain on Sale of Investments
EXPENSES
511 Cost of Merchandise Sold
512 Bad Debt Expense
520 Sales Salaries Expense
521 Sales Commissions
522 Office Salaries Expense
531 Advertising Expense
532 Delivery Expense
537 Store Supplies Expense
538 Office Supplies Expense
539 Office Rent Expense
541 Income Tax Expense
551 Depreciation Expense-Store Equipment
552 Depreciation Expense-Office Equipment
591 Miscellaneous Selling Expense
592 Miscellaneous Administrative Expense
710 Interest Expense
731 Loss on Sale of Investments

none

X

Labels and Amount Descriptions

Labels

In CengageNOW, a Label is a text entry that does not have anamount associated with it.
Current assets
Current liabilities
December 31, 2016
For the Year Ended December 31, 2016
Intangible assets
Investments
Less dividends
Long-term liabilities
Operating expenses
Other income and expenses
Paid-in capital
Add dividends
Property, plant, and equipment
Amount Descriptions

In CengageNOW, an Amount Description is a text entry other thanan Account that has an amount associated with it.
Available-for-sale investments
Decrease in retained earnings
Excess of issue price over par
Gross profit
Income before income tax
Income from operations
Increase in retained earnings
Miscellaneous selling expense
Net income
Net loss
Retained earnings, January 1, 2016
Retained earnings, December 31, 2016
Sales commissions
Sales salaries expense
Store supplies expense
Total administrative expenses
Total assets
Total (before treasury stock)
Total current assets
Total current liabilities
Total liabilities
Total liabilities and stockholders’ equity
Total long-term liabilities
Total investments
Total operating expenses
Total paid-in capital
Total property, plant, and equipment
Total selling expenses
Total stockholders’ equity
Unamortized premium
Unamortized discount

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