Scenario: An inexperienced accountant prepared this condensed income statement for Simon Company, a retail firm that has been in business for a number of years.
For the Year Ended December 31, 2017
Cost of goods sold
As an experienced, knowledgeable accountant, you review the statement and determine the following facts:
1.Net sales consist of: sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000.
2.Other revenues consist of sales discounts $18,000 and rent revenue $4,000.
3.Selling expenses consist of salespersons’ salaries $80,000, depreciation on equipment $10,000, advertising $13,000, and sales commissions $6,000. The commissions represent commissions paid. At December 21, $3,000 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 $47,000, dividends $18,000, utilities $12,000, interest expense $2,000, and rent expense $24,000, which includes prepayments totaling $6,000 for the first quarter of 2018.
Prepare a detailed multi-step income statement with a brief explanation of 700 words. Assume a 25% tax rate.
Show your work on the Excel® spreadsheet and submit with your explanation.