Calculator Multiple-Step Income Statement and Profit Margin The following income

Question

Calculator Multiple-Step Income Statement and Profit Margin The following income statement items, arranged in alphabetical order, are taken from the records of Shaw Corporation for the current year: Advertising expense Commissions expense Cost of goods sold Depreciation expense- office building Income tax expense Insurance expense-salesperson auto 2,250 Supplies expense-office Required: $1,400 1,340 6,700 12,560 48,300 890 $1,500 Interest expense 2,415 Interest revenue 29,200 2,900 1,540 Sales revenue Rent revenue Salaries and wages expense-office Assume that Shaw Corporation classifies all operating expenses into two categories: (1) selling and (2) general and administrative 1. Prepare a multiple-step income statement for the current year. Shaw Corporation Income Statement For the Current Year Operating expenses Selling expenses: Total selling expenses General and administrative expenses:

Explanation / Answer

Answer: Requirement 1 Multi-step Income Statement Sales Revenue $              48,300.00 Less: Cost of goods sold $              29,200.00 Gross profit $              19,100.00 (48300-29200) Less: Operating expenses Selling expense Advertising expense $                1,500.00 Insurance expense- Salesperson Auto $                2,250.00 Commission expense $                2,415.00 Total selling expenses $                6,165.00 (1500+2250+2415) General and admnistrative expense Depreciation expense-Office building $                2,900.00 Salaries and wages expense-office $              12,560.00 Supplies expense-office $                    890.00 Total general and administrative expense $              16,350.00 (2900+12560+890) Total operating expense $              22,515.00 (6165+22515) Income from operation $              (3,415.00) (19100-22515) Other revenue and expenses Rent revenue $                6,700.00 Interest Revenue $                1,340.00 Interest expense $              (1,400.00) Excess of other revenue over expense $                6,640.00 (6700+1340-1400) Income before tax $                3,225.00 (-3415+6640) Income tax expense $                1,540.00 Net income $                1,685.00 (3225-1685) Requirement 2 The advantage of using multi-step income statement is that the income from operation and the income and expense from other source can be determined correctly. We can look into the cause for lower income from operation this helps in decision making. Requirement3 Profit margin =Net income/ Sales revenue* 100 =1685/48300*100 3.49% Requirement 4 There is a loss of income from operation but rent revenue and interest revenue has lead to a profit margin of 3.49%.

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