P5-5B A part-time bookkeeper prepared this income statement for Kritek Company f

Question

P5-5B A part-time bookkeeper prepared this income statement for Kritek Company for
the year ending December 31, 2012.
KRITEK COMPANY
Income Statement
December 31, 2012
Revenues
Sales revenue $720,000
Less: Freight-out $14,000
Sales discounts 11,300 25,300
Net sales 694,700
Other revenues (net) 1,300
Total revenues 696,000
Expenses
Cost of goods sold 460,000
Selling expenses 103,000
Administrative expenses 54,000
Dividends 12,000
Total expenses 629,000
Net income $ 67,000
As an experienced, knowledgeable accountant, you review the statement and determine
the following facts.
1. Sales include $12,000 of deposits from customers for future sales orders.
2. Other revenues contain two items: interest expense $4,000 and interest revenue
$5,300.
3. Selling expenses consist of sales salaries and wages $82,500, advertising $13,000, and
depreciation on store equipment $7,500.
4. Administrative expenses consist of office salaries $23,000; utilities expense $9,500;
rent expense $14,500; and insurance expense $7,000. Insurance expense includes
$1,200 of insurance applicable to 2013.
Instructions
Prepare a correct detailed multiple-step income statement. Assume a tax rate of 25%.

Explanation / Answer

KRITEK COMPANY
Income Statement
For the Year Ended December 31, 2012
Sales revenues
Sales revenue ................................................. $708,000*
Less: Sales discounts.........................................  11,300
Net sales ....................................................... 696,700
Cost of goods sold............................................   460,000
Gross profit .............................................           236,700
Operating expenses
Salaries and wages expense** ................. $105,500
Rent expense .....................................  14,500
Freight-out ........................................  14,000
Advertising expense............................... 13,000
Utilities expense...................................   9,500
Depreciation expense .............................. 7,500
Insurance expense ($7,000 – $1,200) ............ 5,800
Total operating expenses ...................................    169,800
Income from operations.......................................   66,900
Other revenues and gains
Interest revenue ................................... $5,300
Other expenses and losses
Interest expense..................................... 4,000        1,300
Income before income taxes .................................    68,200
Income tax expense.............................................. 17,050
Net income........................................................ $ 51,150

 

*($720,000 – $12,000)
**($82,500 + $23,000)

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