Question

(Multiple-Step and Single-Step Statements) The accountant of Latifa Shoe Co. has piled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2017.

Rent revenue \(29,000

Interest expense 18,000

Market appreciation on land above cost 31,000

Salaries and wages expense (selling) 114,800

Supplies (selling) 17,600

Income tax 37,400

Salaries and wages expense (administrative) \)135,900

Other administrative expenses 51,700

Cost of goods sold 496,000

Net sales 980,000

Depreciation on plant assets (70% selling, 30% administrative) 65,000

Cash dividends declared 16,000

There were 20,000 shares of common stock outstanding during the year.

Instructions

1. Prepare a multiple-step income statement.
2. Prepare a single-step income statement.
3. (c) Which format do you prefer? Discuss.

Short answer

The Net Income of Latifa Shoe Company is $86,900

Step-by-step solution

Meaning of Income Tax

An income tax refers to the obligatory payments made by any individuals, businesses, or corporations on the earnings earned.

Preparing Multiple-Step Income Statement

Latifa Shoe Company
Income Statement
For the Year Ended December 31, 2017
Net Sales		980,000
Cost of Goods Sold		496,000
Gross Profits		484,000
Operating Expenses
Administrative Expenses
Salaries and Wages Expense	135,900
Other Administrative Expenses	51,700
Depreciation on Plant and Assets	19,500
Total Administrative Expenses	207,100
Selling Expenses
Depreciation on Plant assets	45,500
Supplies Expense	17,600
Salaries and Wages expenses	114,800
Total Selling Expenses	177,900
Total Operating Expenses		385,000
Income From Operations		99,000
Other Revenues and Gains
Rent Revenue		29,000
Other Expenses and Losses
Interest Expense		18,000
Income before Income tax		110,000
Income Tax Expense		23,100
Net Income		86,900
Earnings per Share		$4.34

Working Note

1. Calculation of Earnings per share

$\begin{array}{rcl}\mathbf{Earnings}\mathbf{}\mathbf{per}\mathbf{}\mathbf{share}& \mathbf{=}& \mathbf{Net}\mathbf{}\mathbf{Income}\mathbf{÷}\mathbf{Outstanding}\mathbf{}\mathbf{Common}\mathbf{}\mathbf{Stock}\\ & \mathbf{=}& \mathbf{\$}\mathbf{86}\mathbf{,}\mathbf{900}\mathbf{÷}\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{}\mathbf{shares}\\ & \mathbf{=}& \mathbf{\$}\mathbf{4}\mathbf{.}\mathbf{34}\end{array}$

Preparing Single-Step Income Statement

Latifa Shoe Company
Income Statement
For the Year Ended December 31, 2017
Revenues
Net Sales	980,000
Rent Revenues	29,000
Total Revenues (A)	1,009,000
Expenses
Cost of Goods Sold	496,000
Selling Expenses	177,900
Administrative Expenses	207,100
Interest expenses	18,000
Total Expenses (B)	899,000
Income before Income taxes	110,000
Income tax expenses	23,100
Net Income	$86,900
Earnings per Share	$4.34

Working Note

1. Calculation of Earnings per Share

$\begin{array}{rcl}\mathbf{Earnings}\mathbf{}\mathbf{per}\mathbf{}\mathbf{share}& \mathbf{=}& \mathbf{Net}\mathbf{}\mathbf{Income}\mathbf{÷}\mathbf{Outstanding}\mathbf{}\mathbf{common}\mathbf{}\mathbf{stcok}\\ & \mathbf{=}& \mathbf{\$}\mathbf{86}\mathbf{,}\mathbf{900}\mathbf{÷}\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{}\mathbf{shares}\\ & \mathbf{=}& \mathbf{\$}\mathbf{4}\mathbf{.}\mathbf{34}\end{array}$

Explanation for format preference

Multiple-step income statement is always preferable because it provides an in-depth analysis of all the business activities for a particular period.