On August 31, 2008, the balances of the accounts appearing inthe ledger of The B
ID: 2457610 • Letter: O
Question
On August 31, 2008, the balances of the accounts appearing inthe ledger of The Bent Needle Company, a furniture wholesaler, areas follows:
AdministrativeExpenses $125,000
Building 512,500
Cash 48,500
Cost of MerchandiseSold 700,000
Interest Expense 7,500
CapitalStock 568,580
Dividends 25,000
MerchandiseInventory 130,000
NotesPayable 25,000
OfficeSupplies 10,600
SalariesPayable 3,220
Sales 1,275,000
SalesDiscounts 20,000
Sales Returns andAllowances 80,000
SellingExpenses 205,000
StoreSupplies 7,700
Explanation / Answer
Sales 1,275,000 - sales discounts 20,000 -sales returns 80,000 Netsales 1,175,000 - cost ofmerchandise 700,000 GrossProfit 475,000 -operating expenses selling expenses 205,000 Admin expenses 125,000 330,000 Income fromoperations 145,000 Other income & Exp Interest expense 7,500 Net income 137,500 2. Multiple income statement provides multiple classification inthe income statement as gross profit, income from continuingoperations, extra-ordinary items , income before taxes etc.. Themore, the details and classification in the income statement givesthe investors and creditors a better view about the current yearoperations of a business and it is a GAAP rule to state the incomestatement in multiple steps. Single step aggregates all the revenues and deducts all theexpenses from the total which won't give a clear picture ofoperations.
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