Final answer:
The general and administrative expenses for Dye Co. include legal and audit fees and half of the rent for office space, totaling $940,000, which makes option 1 the correct answer.
Step-by-step explanation:
The question involves calculating general and administrative expenses for Dye Co.'s multiple-step income statement. General and administrative expenses are costs not directly tied to the production or sale of a company's goods or services but are necessary for overall operations. In the context of Dye Co., these expenses would consist primarily of legal and audit fees, and the rent for office space since the space is used by non-sales departments like accounting.
To calculate the general and administrative expenses, we first recognize that the office rent should be allocated equally between sales and accounting, which implies that half of the rent cost ($720,000 / 2) relates to the administrative function. Additionally, legal and audit fees are generally considered administrative expenses. Therefore, we sum half of the office rent and the legal and audit fees to calculate the total general and administrative expenses:
- Legal and audit fees: $580,000
- Rent for office space (50%): $360,000
Adding these together, we get a total general and administrative expense amount of $940,000, making option 1 the correct answer.
The interest on inventory floor plan would typically be considered a financing expense whereas the loss on abandoned equipment would be categorized as an operating expense but not a general and administrative one, particularly if the equipment was used in operations directly rather than in administrative functions.