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Question(s) / Instruction(s):

An inexperienced accountant prepared this condensed income statement for McDowell Company, a retail firm that has been in business for a number of years.

MCDOWELL COMPANY

Income Statement

For the Year Ended December 31, 2012

Revenues                           

  Net sales                           $1,064,031

  Other revenues                     27,540

                                                  1,091,571

Cost of goods sold                694,749

Gross profit                             396,822

Operating expenses                      

  Selling expenses                  136,446

  Administrative expenses   128,935

                                                      265,381

Net earnings                           $131,441

 

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

1.            Net sales consist of sales $1,140,390, less freight-out expense on merchandise sold $41,309, and sales returns and allowances $35,050.

2.            Other revenues consist of sales discounts $22,532 and rent revenue $10,014.

3.            Selling expenses consist of salespersons’ salaries $100,144; depreciation on equipment $12,518; advertising $18,777; and sales commissions $7,511. The commissions represent commissions paid. At December 31, $3,755 of commissions have been earned by salespersons but have not been paid. All compensation should be recorded as Salaries and Wages Expense.

4.            Administrative expenses consist of office salaries $58,835; dividends $22,532; utilities $15,022; interest expense $2,504; and rent expense $30,042, which includes prepayments totaling $7,511 for the first quarter of 2013.

Required:

Prepare a correct detailed multiple-step income statement. Assume a 28% tax rate.

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