E4-20A. (Learning Objective 4: Reporting expenses by function and nature) Potomac’s accountant has just prepared an analysis of its expenses for the year, by nature and by functions.

The company earned service revenue totaling $480,000 during the year.

1. Prepare Potomac’s Income Statement using analysis of expenses by nature.
2. Prepare Potomac’s Income Statement using analysis of expenses by function.
3. Looking at your answers to parts 1 and 2 above, which one do you prefer as a user of financial statements?

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A1 1 Expense by Nature and Function 2 Wages and Salaries 3 Depreciation 4 Advertising expense 5 Motor vehicle expense 6 Utilities expense 7 Interest expense 8 Tax expense 9 Cost of Sales and Distribution Administrative Marketing and Logistics Sales Expenses Unallocated 44,000 31,000 38,000 26,000 5,000 3,000 9,000 1,000 32,000 12,000 35,000 28,000 8,000 2,000 11,000 6,000 7,800 3,200 10