Question

The following balances were taken from the books of Vaughn Corp. on December 31, 2020.

Interest revenue		$87,700		Accumulated depreciation—equipment		$41,700
Cash		52,700		Accumulated depreciation—buildings		29,700
Sales revenue		1,381,700		Notes receivable		156,700
Accounts receivable		151,700		Selling expenses		195,700
Prepaid insurance		21,700		Accounts payable		171,700
Sales returns and allowances		151,700		Bonds payable		101,700
Allowance for doubtful accounts		8,700		Administrative and general expenses		98,700
Sales discounts		46,700		Accrued liabilities		33,700
Land		101,700		Interest expense		61,700
Equipment		201,700		Notes payable		101,700
Buildings		141,700		Loss from earthquake damage		151,700
Cost of goods sold		622,700		Common stock		501,700
				Retained earnings		22,700

Assume the total effective tax rate on all items is 20%.

Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year.

Answer 1

• Preparation of a multiple-step income statement

	Amount $	Amount $
Sales revenue		1,381,700
Less: Sales return and allowance	-151,700
Less: Sales discount	-46,700	198,400
Net Sales		1,183,300
Less: Cost of goods sold		-622,700
Gross profit		560,600
Operating expense
Less: Administrative and general expense	-98,700
Less: Selling expense	-195,700
Total operating expense		-294,400
Operating income		266,200
Other income
Interest revenue	87,700
Other expense
Interest expense	61,700
Loss from earthquake	151,700	-125,700
Income before tax		140,500
Less; Income tax @20%		-28,100
Net income		112,400
Share outstanding		100,000
EPS		1.124