Scenario:An inexperienced accountant prepared this condensed income statement for Simon Company, a retail firm that has been in business for a number of years.

SIMON COMPANY

Income Statement

For the Year Ended December 31, 2017

Revenues

Net sales

$850,000

Other revenues

22,000

872,000

Cost of goods sold

555,000

Gross profit

317,000

Operating expenses

Selling expenses

109,000

Administrative expenses

103,000

212,000

Net earnings

$105,000

As an experienced, knowledgeable accountant, you review the statement and determine the following facts:

1. The $850,000 of Net sales on his statement consisted of: sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000.(Consider whether all of these items belong in the Net Sales calculation)
2. The $22,000 of Other revenues on his statement consisted of sales discounts $18,000 and rent revenue $4,000.(Consider whether the Other Revenues section is listed in the right place on this income statement and should any of these items listed as other be included in Net Sales?)
3. Cost of goods sold was $555,000.
4. The $109,000 of Selling expenses on his statement consisted of salespersons' salaries $80,000, depreciation on equipment $10,000, advertising $13,000, and sales commissions paid of $6,000.However, as of December 21, an additional $3,000 of commissions have been earned by salespersons but have not been paid.(Consider how an item is treated in accrual accounting when it is earned and not paid).
5. The $103,000 of Administrative expenses consist of office salaries $47,000, utilities $12,000, and rent expense $24,000 ($6000 of the rent expense was prepaid for the first quarter of 2018.) As well as $18,000 of dividends paid and $2000 of interest expense. (Consider both your prepaid item here as well as whether these items all belong in the administrative expense section).
6. Assume a 25% tax rate. (Consider 25% of what number and where the expense for this belongs on the statement).
7. NOTE: Salesperson salaries, office salaries, and commissions are all considered "Salaries and Wages".
8. NOTE the formula for the multi-step income statement that the accountant should have used to prepare the statement: Sales Revenue - Contra Revenues = Net Sales - COGS = Gross Profit - Operating Expenses = Income from Operations +/- Other revenues and/or expenses = Earnings Before Income Tax - Income tax expense = Net income

Preparea corrected detailed multi-step income statement using the Week 3 Excel Spreadsheet provided in the Student Materials.

Name Date SIMON COMPANY Income Statement For the Year Ended December 31, 2017 289 289