Question

Multiple-Step Income Statement

On March 31, 2018, the balances of the accounts appearing in the ledger of Royal Furnishings Company, a furniture wholesaler, are as follows:

Accounts Receivable	$170,000		Inventory	995,500
Accumulated Depreciation—Building	725,050		Notes Payable	310,050
Administrative Expenses	546,850		Office Supplies	19,550
Building	2,400,800		Retained Earnings	1,265,900
Cash	178,900		Salaries Payable	7,900
Common Stock	312,900		Sales	6,449,000
Cost of Goods Sold	3,796,900		Selling Expenses	728,800
Dividends	169,800		Store Supplies	93,400
Interest Expense	10,500

a. Prepare a multiple-step income statement for the year ended March 31, 2018.

Royal Furnishings Company
Income Statement
For the Year Ended March 31, 2018
		$
Gross profit		$
Expenses:
	$
Total expenses
		$
Other expense:
		$

b. What is a major advantage of the multiple-step income statement over the single-step income statement?

Answer 1

a.

In this case there are so many subparts within the income statement (like gross profit, operating expenses, total expenses, etc) to reach into the net income.

Heads	$	$
Sales		6,449,000
Less: Cost of goods sold		3,796,900
Gross profit		2,652,100
Expenses (operating):
Selling expenses	728,800
Total expenses		728,800
Operating income		1,923,300
Other expense (non-operating):
Interest expense		10,500
Net income		1,912,800

b.

Advantage: It gives overall health of an organization by segregating heads like, gross profit, operating expenses, non-operating expenses, etc. Therefore, it determines which areas to be improved; suppose the company requires improvement in the operating section. This is not possible in the single-step.