Question

On October 31, 2016, the balances of the accounts appearing in the ledger of Prestige Furnishings Company, a furniture wholesaler, are as follows:

Accumulated Depreciation-Building $746,350
Administrative Expenses 515,750
Building 2,419,500
Cash 168,150
Common Stock 300,500
Cost of Merchandise Sold 3,925,500
Dividends 179,100
Interest Expense 9,950
Merchandise Inventory 1,020,900
Notes Payable 259,350
Office Supplies 19,150
Retained Earnings 1,343,400
Salaries Payable 7,600
Sales 6,144,850
Selling Expenses 732,500
Store Supplies 92,700
Required:
A. Prepare a multiple-step income statement for the year ended October 31, 2016. Be sure to complete the statement heading. Refer to the information given in the exercise and to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. In the Other income and expenses section only, enter amounts that represent other expenses as negative numbers using a minus sign.
B. What is a major advantage of the multiple-step income statement over the single-step income statement?

Answer 1

Answer and Explanation:

A. The preparation of the multiple income statement is presented below:

Prestige Furnishings Company

Multiple-step income statement

For the year ended October 31, 2016

Sales $6,144,850

Less: Cost of goods sold -$3,925,500

Gross profit $2,219,350

Less: Operating expenses

Administrative expenses -$515,750

Selling expenses -$732,500

Supplies expenses -$92,700

Total operating expenses -$1340,950

Operating income $878,400

Non operating income or others

Less: Interest expense -$9,950

Net income $868,450

B. The major advantage is that the multiple-step income statement reflects the relationship between the gross profit ratio i.e gross profit to sales that expressed in a percentage form and it also depicts the multiple levels indicating the operating expenses, operating income, non operating income, etc