An inexperienced accountant prepared this condensed income statement

PROBLEM 5-5B

P5-5B An inexperienced accountant prepared this condensed income statement for

Wright Company, a retail firm that has been in business for a number of years.

WRIGHT COMPANY

Income Statement

For the Year Ended December 31, 2014

Revenues

Net sales       $952,000

Other revenues 16,000

                        968,000

Cost of goods sold 548,000

Gross profit 420,000

Operating expenses

Selling expenses 160,000

Administrative expenses 104,000

264,000

Net earnings $156,000

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

1. Net sales consist of sales $972,000, less freight-out on merchandise sold $20,000.

2. Other revenues consist of sales discounts $12,000 and interest revenue $4,000.

3. Selling expenses consist of salespersons’ salaries $88,000; depreciation on equipment $4,000; sales returns and allowances $46,000; advertising $12,000; and sales commissions $10,000. All compensation should be recorded as Salaries and Wages Expense.

4. Administrative expenses consist of office salaries $54,000; dividends $14,000; utilities $13,000; interest expense $3,000; and rent expense $20,000, which includes

prepayments totaling $2,000 for the first month of 2015. The utilities represent

utilities paid. At December 31, utility expense of $3,000 has been incurred but not

paid.

Prepare a correct detailed multiple-step income statement.  Assume a tax rate of 25%.