Question

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 2014 info 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

(a) Prepare income statement for the year 2014 using the mutiple-step form. Common shares outstanding for 2014 total 40,550 (000 omitted).

(b) Prepare an income statement for the year 2014 using the single-step form.

Answer 1

Answer:

1. For the Year Ended December 31,2014

2. Revenues

3. Sales Revenue $96,639

4. Rent Revenue $17,230

5. Total Revenues $113869

(Sales Revenue $96,639 + Rent Revenue $17,369)

6. Expenses

7. Cost of Goods Sold $60,570

8. Selling Expenses $17,567

9. Administrative Expenses $9,138

10. Interest Expense $1,860

11. Total Expenses $89135

(Cost of Goods Sold $60,570 + Selling Expenses $17,567 + Administrative Expenses $9,138 +Interest Expense $1,860)

12. Income Before Income Tax $24,734

13. Income Tax Expense $9,070

14. Net Income/Loss $15,664

(Income Before Income Tax  $24,734 - Income Tax Expense $9,070)

15. Earnings Per Share $0.38

Earnings per share = ($15,664 ÷ 40,550) = $0.38

Explanation:

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 2014 info related to P. Bride Company. ($000 omitted).

From the information given, we can arranged the values as follows into a balance sheet

1. For the Year Ended December 31,2014

2. Revenues

3. Sales Revenue $96,639

4. Rent Revenue $17,230

5. Total Revenues $113869

(Sales Revenue $96,639 + Rent Revenue $17,369)

6. Expenses

7. Cost of Goods Sold $60,570

8. Selling Expenses $17,567

9. Administrative Expenses $9,138

10. Interest Expense $1,860

11. Total Expenses $89135

(Cost of Goods Sold $60,570 + Selling Expenses $17,567 + Administrative Expenses $9,138 +Interest Expense $1,860)

12. Income Before Income Tax $24,734

13. Income Tax Expense $9,070

14. Net Income/Loss $15,664

(Income Before Income Tax  $24,734 - Income Tax Expense $9,070)

15. Earnings Per Share $0.38

Earnings per share = ($15,664 ÷ 40,550) = $0.38

Answer 2

Answer:

a. using multiple step format, the income statement is shown below:

                                  Income statement for the year ended 2014

                                                                     $                               $  

sales                                                                                          96500

less cost of sales                                                                     60570  

Gross profit                                                                               35930

Operating Expenses:

sales commission                                    7980

delivery expenses                                   2690

depreciation of office equipment           3960

Admin & office salaries                           4900      

total operating expenses                                                           19530    

net operating income                                                                 16400                                    

Non operating activities:                      

rent revenue                                          17230

depreciation of sales equipment         (6480)

interest expenses                                (1860)  

total non operation                                                                   8890

net income before tax                                                              25290    

less income tax                                                                          9070  

net income after tax                                                                  16220

ii.  using single step format,income becomes:

               income statement for the month ended 2014    

                                                                      $                               $

Revenue:

sales                                                        96500

rent revenue                                            17230  

total revenue                                                                               113730

Expenses:

cost of sales                                            60570

delivery expenses                                    2690

admin & office salaries                            4900

depreciation of office equipment            3960

sales commission                                    7980    

depreciation of sales equipment            6480    

income tax                                                9070

interest expense                                       1860

total expenses                                                                             97510

net income                                                                                   16220

Explanation:

in a multiple step income statement presentation, the accountant is expected to follow the step by step presentation  that is, he/she must group all the various activities into three headings namely,gross profit, operating income and net income. But in single step income statement presentation , all the activities including non operational activities are joined together in one to estimate the net income. However,the total net income or profit is the same in both formats.                    

Note: the bracket signifies minus.