Question

On March 31, 20Y9, the balances of the accounts appearing in the ledger of Royal Furnishings Company, a furniture store, are as follows: Accounts Receivable $ 170,000 Accumulated Depreciation-Building 750,000 Administrative Expenses 435,000 Building 3,500,000 Cash 80,000 Common Stock 300,000 Cost of Goods Sold 5,500,000 Dividends 175,000 Interest Expense 15,000 Inventory 980,000 Notes Payable 250,000 Office Supplies 20,000 Retained Earnings 1,987,000 Salaries Payable 8,000 Sales 8,245,000 Selling Expenses 575,000 Store Supplies 90,000 A. Prepare a multiple-step income statement for the fiscal year ended March 31, 20Y9. 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. For those boxes in which you must enter subtracted or negative numbers use a minus sign. B. What is a major advantage of the multiple-step income statement over the single-step income statement?

Answer 1

The multiple-step income statement for Royal Furnishings Company shows detailed revenue and expense items resulting in a net income of $1,204,000. The multiple-step format provides insight into operational efficiency and financial health, highlighting the distinct contribution of core and non-core business activities to the overall profit.

Step-by-step explanation:

A. Multiple-Step Income Statement for Royal Furnishings Company:

For the Fiscal Year Ended March 31, 20Y9

1. Sales: $8,245,000
2. Cost of Goods Sold: -$5,500,000
3. Gross Profit: $2,745,000 (Sales - Cost of Goods Sold)
4. Selling Expenses: -$575,000
5. Administrative Expenses: -$435,000
6. Total Operating Expenses: -$1,010,000 (Selling Expenses + Administrative Expenses)
7. Operating Income: $1,735,000 (Gross Profit - Total Operating Expenses)
8. Interest Expense: -$15,000
9. Income Before Taxes: $1,720,000 (Operating Income - Interest Expense)
10. Assuming Tax Rate is 30%: Income Taxes: -$516,000 (30% of Income Before Taxes)
11. Net Income: $1,204,000 (Income Before Taxes - Income Taxes)

B. Advantage of a Multiple-Step Income Statement:

A major advantage of the multiple-step income statement over the single-step income statement is that it provides a detailed breakdown of revenues and expenses, resulting in a clearer picture of a company’s financial performance. It segregates operating revenue and expenses from non-operating items, and distinguishes between gross profit, operating income, and net income. This format aids users in assessing a company's operational efficiency and other financial health aspects.

Answer 2

Answer and Explanation:

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

Royal Furnishings Company

Multiple-step income statement

For the fiscal year ended March 31, 20Y9

Sales $8,245,000

Less: Cost of goods sold -$5,500,000

Gross profit $2,745,000

Less: Operating expenses

Administrative expenses -$435,000

Selling expenses -$575,000

Total operating expenses -$1,010,000

Operating income $1,735,000

Non operating income or others

Less: Interest expense -$15,000

Net income $1,720,000

B. The major advantage of the multi-step income statement represents the relation between the gross profit ratio i.e. gross profit and revenue measured as a percentage and also demonstrates the various types of levels of operating expenses, operating profits, non-operating profits, etc.