An inexperienced accountant prepared this condensed income statement for Ivanhoe Company, a retail firm that has been in business for a number of years. IVANHOE COMPANY Income Statement For the Year Ended December 31, 2017 Revenues Net sales $1,105,000 Other revenues 28,600 1,133,600 Cost of goods sold 721,500 Gross profit 412,100 Operating expenses Selling expenses 141,700 Administrative expenses 133,900 275,600 Net earnings $136,500 As an experienced, knowledgeable accountant, you review the statement and determine the following facts. 1. Net sales consist of sales $1,184,300, less freight-out on merchandise sold $42,900, and sales returns and allowances $36,400. 2. Other revenues consist of sales discounts $23,400 and rent revenue $5,200. 3. Selling expenses consist of salespersons' salaries $104,000, depreciation on equipment $13,000, advertising $16,900, and sales commissions $7,800. The commissions represent commissions paid. At December 31, $3,900 of commissions have been earned by salespersons but have not been paid. All compensation should be recorded as Salaries and Wages Expense. 4. Administrative expenses consist of office salaries $61,100, dividends $23,400, utilities $15,600, interest expense $2,600, and rent expense $31,200, which includes prepayments totaling $7,800 for the first quarter of 2018. Prepare a correct detailed multiple-step income statement. Assume a 25% tax rate. (List other revenues before other expenses. Round answers to 0 decimal places, e.g. 5,125. Enter negative amounts using either a negative cian precedina the numher ea -45.or narantheces e a l45))
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Prepare an income statement with the details given.
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