An inexperienced accountant prepared this condensed income statement

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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%.

 

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