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. Net sales consist of: sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000.
2. Other revenues consist of sales discounts $18,000 and rent revenue $4,000.
3. Selling expenses consist of salespersons' salaries $80,000, depreciation on equipment $10,000, advertising $13,000, and sales commissions $6,000.The commissions represent commissions paid. At December 21, $3,000 of commissions have been earned by salespersons but have not been paid.All compensation should be recorded as Salaries and Wages Expense.
4. Administrative expenses consist of office salaries $47,000, dividends $18,000, utilities $12,000, interest expense $2,000, and rent expense $24,000, which includes prepayments totaling $6,000 for the first quarter of 2018.

Preparea detailed multi-step income statement with a brief explanation of 700 words. Assume a 25% tax rate.

Showyour work on the Excelspreadsheet and submit with your explanation.

Please use the Excel spreadsheet on file

Thank you!

Name Section Date Problem 5-5A Simon Company SIMON COMPANY Income Statement For the Year Ended December 31, 2017 289 289 SIMON'S COMPANY INCOME STATEMENT The income statement is a financial statement that gives an explicit report of the financial performance of a particular company's at a certain point of time over a particular accounting period. SIMON's company's performance can be assessed by making a summary of the activities that have happened in the business accounting for expenses incurred, the total revenues as well as expenses for both operating and non-operating activities that has happened. The income statement is also known as the profit and loss statement or statement of revenue and expense is the one of three main financial tools used for annual reporting. This income statement for Simon's business gives a summary of the net profits or loss incurred over a specific accounting period. The prior condensed income statement prepared by the previous inexperienced accountant does not contain a lot of information as required for a complete income statement. Simon Company is a retail firm that has been in business for a number of years now. The income statement unlike the balance sheet which only covers one moment in time, we have prepared an income statement that provides the performance information for the span of time period. The statement begins with sales values and works down to net income. SIMON'S 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 After a careful review of the information provided in the condensed statement, I realized the following; The Net sales consist of: sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000. The Other revenues consist of sales discounts $18,000 and rent revenue $4,000. The selling expenses consist of salespersons' salaries $80,000, depreciation on equipment $10,000, advertising $13,000, and sales commissions $6,000. The commissions stand for the commissions the company has paid. As at December 21, $3,000 of commissions have been earned by salespersons but have not been paid. All compensation should be recorded as Salaries and Wages Expense. Administrative expenses consist of office salaries $17,000, dividends $18,000, utilities $12,000, interest expense $2,000, and rent expense $24,000, which includes prepayments totaling $6,000 for the first quarter of 2018. The complete and detailed income statement for the company will appear as show below. PARTICULARS $ Gross Sales $911,000, Less: Freight Out ($33,000) Less: Sales Return & Allowances ($28,000) $ $ Amount NET SALES $850,000 Cost of Goods Sold 555,000 Gross Profit 317,000 OPERATING EXPENSES Selling Expenses 109,000 Sales Persons Salary 94424 Depreciation of Eqipment 11803 Advertising 15344 Sales commission (7082+3541) 10623 Administrative Expense 103,000 Office Salary $17,000 Utilities $12,000, rent Expense (28327-7082) $24,000 (212,000) Income From Operations 105000 Other Revenues & Gains Discounts $18,000 Rent $4,000 22000 127000 Other Expense ($2,000) INCOME BEFORE TAX 129,000 Less: Tax (25%) (32250) INCOME AFTER TAX $96,750 The net sales is a sum of the gross sales less the freight out and the sales returns and the allowances. In this income statement we have taken the simpler approach, I have totaled all revenues and subtracted the expenses to get to the bottom line. The Multi-Step structure of the statement takes a number of steps to find the bottom line, I started with the gross profit of the company. I then calculated the operating expenses and deducted them from the gross profit to get the total income from activities undertaken. I deduced the income from operations as the difference of other revenues and other expenses. I then combined this with the income from the operations to yields the income before taxes. In the final step I deducted the taxes, and finally got the net income for the company for this particular period. Since I was assuming a 25% tax rate, I took 25% of 129000 to get less of the income before tax which is 32250. The final income becomes $96,750 My income statement report can help Simon's company determine the previous financial performance of their firm and be able to predict the expected future performance including assessing the ability of making future cash flows using report from income and expenses. However, the information from my income statement has a limitation as some Items might be relevant but are not measured reliably or may not be reported