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Chapter 4: Question 19 (page 180)

You run into Greg Norman at a party and begin discussing financial statements. Greg says, “I prefer the single step income statement because the multiple-step format generally overstates income.” How should you respond to Greg?

Short Answer

Expert verified

Both the formats of income statement multi-step and single-step report the same net income.

Step by step solution

01

Financial Statements

Financial statements are the annual reports of a business concern containing the summarized information of one year’s financial information.

02

Explanation to Greg

According to the given scenario, the concerned person should be provided with the proper explanation of the two different formats of theincome statement.

The amount of net income remains the same in both cases; the only difference is that a multi-step income statement reports the revenues and expenses in a bifurcated form, such as operational and non-operational.

On the other hand, the single-step income statement presents the revenues and expenses in an aggregated way.

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Most popular questions from this chapter

Brisky Corporation had net sales of 2,400,000andinterestrevenueof31,000 during 2017. Expenses for 2017 were cost of goods sold 1,450,000,administrativeexpenses212,000, selling expenses 280,000,andinterestexpense45,000. Brisky’s tax rate is 30%. The corporation had 100,000 shares of common stock authorized and 70,000 shares issued and outstanding during 2017. Prepare a single-step income statement for the year ended December 31, 2017.

What is the basis for distinguishing between operating and non-operating items?

Question: Below is the Retained Earnings account for the year 2017 for Acadian Corp.

Retained earnings, January 1, 2017 \(257,600

Add:

Gain on sale of investments (net of tax) \)41,200

Net income 84,500

Refund on litigation with government, related to

the year 2014 (net of tax) 21,600

Recognition of income earned in 2016, but omitted

from income statement in that year (net of tax) 25,400 172,700

430,300

Deduct:

Loss on discontinued operations (net of tax) 35,000

Write-off of goodwill (net of tax) 60,000

Cumulative effect on income of prior years in changing

from LIFO to FIFO inventory valuation in 2017 (net of tax) 23,200

Cash dividends declared 32,000 150,200

Retained earnings, December 31, 2017 $280,100

Instructions

(b) State where the items that do not appear in the corrected retained earnings statement should be shown

(Multiple-Step Statement) The following balances were taken from the books of Alonzo Corp. on December 31, 2017.

Interest revenue 86,000Accumulateddepreciationequipment40,000

Cash 51,000Accumulateddepreciation—buildings28,000

Sales revenue 1,380,000Notesreceivable155,000

Accounts receivable 150,000Sellingexpenses194,000

Prepaid insurance 20,000Accountspayable170,000

Sales returns and allowances 150,000Bondspayable100,000

Allowance for doubtful accounts 7,000Administrativeandgeneralexpense97,000

Sales discounts 45,000Accruedliabilities32,000

Land 100,000Interestexpense60,000

Equipment 200,000Notespayable100,000

Buildings 140,000Lossfromearthquakedamage150,000

Cost of goods sold 621,000Commonstock500,000

Retained earnings $21,000

Assume the total effective tax rate on all items is 34%.

Instructions

Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year.

Roxanne Carter Corporation reported the following for 2017: net sales 1,200,000,costofgoodssold750,000, selling and administrative expenses 320,000,andanunrealizedholdinggainonavailable−for−salesecurities18,000.

Instructions

Prepare a statement of comprehensive income, using (a) the one statement format and (b) the two statement format. (Ignore income taxes and earnings per share.)

See all solutions

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