12. Multiple-Step Income Statement and Report Form of Balance Sheet

    The following selected accounts and their current balances appear in the ledger of Prescott Inc. for the fiscal year ended September 30, 20Y8:

    Cash		$208,750		Retained Earnings (as of Sept. 30, 20Y7)		$ 634,500
    Accounts Receivable		375,000		Dividends		312,500
    Inventory		945,000		Sales		8,917,500
    Estimated Returns Inventory		87,500		Cost of Goods Sold		5,437,500
    Office Supplies		37,500		Sales Salaries Expense		972,000
    Prepaid Insurance		30,000		Advertising Expense		114,750
    Office Equipment		288,000		Depreciation Expense Store Equipment		20,750
    Accumulated Depreciation Office Equipment		123,750		Miscellaneous Selling Expense		5,000
    Store Equipment		1,278,750		Office Salaries Expense		193,500
    Accumulated Depreciation Store Equipment		466,750		Rent Expense		99,750
    Accounts Payable		121,500		Insurance Expense		57,375
    Customer Refunds Payable		87,500		Depreciation Expense Office Equipment		40,500
    Salaries Payable		24,000		Office Supplies Expense		4,125
    Note Payable (due evenly over next 5 years)		130,000		Miscellaneous Administrative		4,750
    Common Stock		37,500		Interest Expense		30,000

    Instructions:

    1. Prepare a multiple-step income statement.

    Prescott Inc.
    Income Statement
    For the Year Ended September 30, 20Y8
    Sales			$
    Cost of goods sold
    Net sales			$
    Operating expenses:
    Selling expenses:
    Sales salaries expense	$
    Advertising expense
    Depreciation expense-store equipment
    Miscellaneous selling expense
    Total selling expenses		$
    Administrative expenses:
    Office salaries expense	$
    Rent expense
    Insurance expense
    Accumulated depreciation-office equipment
    Office supplies expense
    Miscellaneous administrative expense
    Total administrative expenses
    Total operating expenses
    Operating income			$
    Other expense:
    Interest expense
    Net income			$

    2. Prepare a statement of stockholders' equity. No common stock was issued during the year. For those boxes in which no entry is required, leave the box blank.

    Prescott Inc.
    Statement of Stockholders Equity
    For the Year Ended September 30, 20Y8
    	Common Stock	Retained Earnings	Total
    Balances, Oct. 1, 20Y7	$		$
    Net income
    Sales discounts
    Balances, Sept. 30, 20Y8	$	$	$

    3. Prepare a report form of balance sheet, assuming that the current portion of the note payable is $26,000.

    Prescott Inc.
    Balance Sheet
    September 30, 20Y8
    Assets
    Current assets:
    Cash		$
    Accounts receivable
    Inventory
    Estimated returns inventory
    Office supplies
    Prepaid insurance
    Total current assets			$
    Property, plant, and equipment:
    Office equipment	$
    Less accumulated depreciation		$
    Store equipment	$
    Less accumulated depreciation
    Total property, plant, and equipment
    Total assets			$
    Liabilities
    Current liabilities:
    Accounts payable		$
    Customer refunds payable
    Salaries payable
    Note payable (current portion)
    Total current liabilities			$
    Long-term liabilities:
    Note payable (long-term portion)
    Total liabilities			$
    Stockholders' Equity
    Common stock		$
    Retained earnings
    Total stockholders' equity
    Total liabilities and stockholders' equity			$

    Feedback

    Use the format for the report form of a balance sheet, with details on current assets, property, plant and equipment, current liabilities, and long-term liabilities. The owners capital amount is taken from the statement of stockholders equity.

    4a. Select the statement that best describes how multiple-step and single-step income statements differ.

    Multiple-step:	It contains various sections for revenues and expenses, with intermediate balances, and concludes with net income.
    Single-step:	It contains the total of all expenses deducted from the total of all revenues, with no intermediate balances.

    4b. In the account form balance sheet, the assets are listed on the left-hand side of the liabilities and stockholders' equities.

    Feedback

    Recall that the report-form of a balance sheet presents the accounting equation in a downward sequence as opposed to the account-form which is a side by side presentation.

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