Question

E4.5 (LO 2) (Multiple-Step and Single-Step Statements) Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2020 information related to P. Bride Company ($000 omitted). Administrative expense Officers’ salaries $ 4,900 Depreciation of office furniture and equipment 3,960 Cost of goods sold 60,570 Rent revenue 17,230 Selling expense Delivery expense 2,690 Sales commissions 7,980 Depreciation of sales equipment 6,480 Sales revenue 96,500 Income tax 9,070 Interest expense 1,860 Instructions a. Prepare an income statement for the year 2020 using the multiple-step form. Common shares outstanding for 2020 total 40,550 (000 omitted). b. Prepare an income statement for the year 2020 using the single-step form. c. Which one do you prefer? Discuss.

Answer 1

Answer:

In the Multistep income it's possible to segregate the operative expenses and  revenues of the non operative, it also shows the gross profit, which is  

the Net Sales Revenues less the Cost of Goods Sold.  

First it's shown the Gross Profit, then substracted the operating expenses  

to arrive at operating income.

Finally with the non operating movements we have the net Income After Taxes and with the taxes expenses we have the Net Income of the company.

By the way in the Single Step Income doesn't exist a segregation in the expenses, it doesn't break the expenses into cateogories, so all the expenses are listed together.

It means the financial statement doesn't give much information to the external users about the company operations.

Explanation:

2020 Multi Step - Income Statement

$ 96.500,000 Sales

$ 96.500,000 Net Sales Revenues

-$ 6.480,000   Depreciation of sales equipment

-$ 60.570,000 Cost of goods sold

-$ 67.050,000 Cost of goods sold

$ 29.450,000 Gross PROFIT

-$ 7.980,000   Sales commissions

-$ 4.900,000   Administrative expense Officers’ salaries  

-$ 3.960,000   Depreciation of office furniture and equipment  

-$ 2.690,000   Selling expense Delivery expense

-$ 19.530,000 Operating Expenses

$ 9.920,000    INCOME FROM OPERATIONS

$ 17.230,000   Rent Revenue

$ 17.230,000   Other Revenues and Gains:

-$ 1.860,000   Interest Expenses

-$ 1.860,000   Other expenses and Loss

$ 25.290,000 NET INCOME AFTER TAXES

-$ 9.070,000   Income Tax Expenses

$ 16.220,000   Net INCOME

2020 Single Step - Income Statement

$ 96.500,000 Sales

$ 17.230,000   Rent Revenue

$ 113.730,000 TOTAL REVENUES

-$ 60.570,000 Cost of goods sold

-$ 10.440,000 Depreciation Expense

-$ 12.880,000 Wage Expenses

-$ 2.690,000   Supplies Expenses

-$ 1.860,000   Interest Expenses

-$ 88.440,000 TOTAL EXPENSES

-$ 9.070,000   Income Tax Expenses

$ 16.220,000   Net INCOME