Question

B. The financial records of Leon Paul Inc. were destroyed by fire at the end of 2017. Fortunately the controller had kept certain statistical data related to the income statement as presented below. 1. The beginning merchandise inventory was $184,000 and decreased 20% during the current year. 2. Sales discounts amount to $34,000. 3. 20,000 shares of common stock were outstanding for the entire year. 4. Interest expense was $40,000. 5. The income tax rate is 30%. 6. Cost of goods sold amounts to $1,000,000. 7. Administrative expenses are 20% of cost of goods sold but only 8% of gross sales. 8. Four-fifths of the operating expenses relate to sales activities. Operating expenses consist of selling and administrative expenses. Instructions From the foregoing information, prepare an income statement for the year 2017 in singlestep form.

Answer 1

Answer:

Cost of goods sold = $1,000,000.

Administrative expenses are 20% of cost of goods sold = 1000000 * 20% = $200,000

Selling and administrative expenses = Operating expenses = $200,000

Four-fifths of the operating expenses relate to sales activities:

Hence: Sales expense = 200000 * 4/5 = $160,000

Administrative expenses are only 8% of gross sales:

Gross sales = 200,000 / 8% = $2,500,000

Sales discounts amount to $34,000

Interest expense was $40,000.