Question

On March 31, 2019, the balances of the accounts appearing in the ledger of Racine Furnishings Company, a furniture wholesaler, are as follows:

Accumulated Depreciation-Building $ 300,000
Administrative Expenses 216,000
Building 1,000,000
Cash 70,000
Cost of Merchandise Sold 1,520,000
Interest Expense 4,000
Kathy Melman, Capital 634,800
Kathy Melman, Drawing 70,000
Merchandise Inventory $ 392,000
Notes Payable 100,000
Office Supplies 8,000
Salaries Payable 3,200
Sales 2,564,000
Selling Expenses 286,000
Store Supplies 36,000

Required:
a. Prepare a multiple-step income statement for the year ended March 31, 2019. Be sure to complete the heading of the statement. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required.
b. What is a major advantage of the multiple-step income statement over the single-step income statement?

Answer 1

Answer:

a.

Racine Furnishings Company

Multiple-Step Income statement

for the year ended March 31, 2019.

                                                   $                  $

Sales                                                       2,564,000

Cost of Merchandise Sold                    (1,520,000)

Gross income                                         1,044,000

Operating Expenses:

Selling Expenses                 286,000

Administrative Expenses    216,000

Total Operating Expense                       (502,000)

Income from operations                          542,000

Non operating Expenses:

Interest Expense                                      (4,000)  

 Net Income                                              538,000

Following Accounts are the balance sheet account, so, they are not dealt here in income statement.

Accumulated Depreciation-Building $ 300,000

Building 1,000,000

Cash 70,000

Kathy Melman, Capital 634,800

Kathy Melman, Drawing 70,000

Merchandise Inventory $ 392,000

Notes Payable 100,000

Office Supplies 8,000

Salaries Payable 3,200

Store Supplies 36,000

b.

Multi step Income statement shows a greater details of every type of expenses and revenue. It categorises the incomes and expenses as operating and non operating.

It calculates the gross income value which shows that how much profit the business is earning directly from the revenue.

It calculates the operating income value which shows that how efficiently the business is earning from its operations.