Question

Multiple-Step Income Statement

On March 31, 2019, the balances of the accounts appearing in the ledger of Racine Furnishings Company, a furniture wholesaler, are as follows:

Accumulated Depreciation—Building	$774,700		Merchandise Inventory	$1,001,550
Administrative Expenses	556,300		Notes Payable	238,700
Building	2,594,150		Office Supplies	19,650
Cash	173,200		Salaries Payable	7,850
Cost of Merchandise Sold	3,684,350		Sales	6,710,650
Interest Expense	10,150		Selling Expenses	742,000
Kathy Melman, Capital	1,638,200		Store Supplies	86,600
Kathy Melman, Drawing	178,150

a. Prepare a multiple-step income statement for the year ended March 31, 2019.

Racine Furnishings Company
Income Statement
For the Year Ended March 31, 2019
		$
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

Solution:-

a. Prepare a multiple-step income statement for the year ended March 31, 2019:-

Racine Furnishings Company
Income Statement
For the Year Ended March 31, 2019
Sales		6,710,650
Cost of merchandise sold		3,684,350
Gross Profit		3,026,300
Expense
Selling Expense	742,000
Administrative Expense	556,300
Total Expense		1,298,300
Income from the operation		1,728,000
Other expense
Interest expense		10,150
Net Income		1,717,850

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

The major advantage of the multiple-step form of income statement is that relationships such as gross profit to sales are indicated. The major disadvantages are that it is more complex and the total revenues and expenses are not indicated, as is the case in the single-step income statement.