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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Multiple-step income statement

Identify the errors in the following income statement:

Curbstone Company Income Statement For the Year Ended August 31, 2019
Sales $8,595,000
Cost of merchandise sold 6,110,000
Income from operations $2,485,000
Expenses:
Selling expenses $800,000
Administrative expenses 575,000
Delivery expenses 425,000
Total expenses

1,800,000

$ 685,000

Other expense:
interest revenue 45.000
Gross profit S 640.000

To determine

Multi step income statement: A multiple step income statement refers to the income statement that shows the operating and non-operating activities of the business under separate head. In different steps of the multi-step income statement, principal operating activities are reported that starts from the record of sales revenue with all contra sales revenue account like sales returns, allowances and sales discounts.

To Identify: The errors in the income statement of Company C.

Explanation

  • The deduction of cost of goods sold from the sales revenue results in gross profit rather than income from operations.
  • The deduction of total expenses from the gross profit results in income from operations rather than operating income.
  • The interest revenue should come under the head of ‘other revenue’ and added to income from operations which results in net income.
  • The final amount is titled as net income not gross profit on the income statement.

Prepare the correct multi-step income statement of Company C.

...
Company C
Income Statement
Year Ended August 31, 2019
Particulars Amount ($) Amount ($)
Sales Revenue   8,595,000

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