Preparing a Multiple Step Income Statement
The adjusted trial Balance for the Year ended December 31, 2010, For ELM
Company is shown below:
ELM Company
Adjusted Trial Balance
For the Year ended December 31, 2010
Items
Dr
Cr
Cash
14,500
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Accounts Receivable
11,100
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Merchandise Inventory
29,000
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Prepaid Insurance
2,500
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Store Equipment
95,000
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Accumulated Depreciation
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18,000
Notes Payable
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25,000
Accounts Payable
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10,600
Common Stock
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70,000
Retained Earnings
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11,000
Dividends
12,000
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Sales
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536,800
Sales Returns and Allowances
6,700
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Sales Discounts
5,000
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Cost of Goods Sold
363,400
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Freight-Out
7,600
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Advertising Expense
12,000
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Store Salaries Expense
56,000
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Utilities Expense
18,000
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Rent Expense
24,000
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Depreciation Expense
9,000
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Insurance Expense
4,500
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Interest Expense
3,600
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Interest Revenue
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2,500
Total
673,900
673,900
Instructions: Given this data, prepare a multiple-Step Income statement
for ELM Company, assuming a tax rate of 30%.
What to do: Remember to always label your Income statements with the
company name, Income statement and for period ending. When doing a
multiple step income statement, one must remember the key elements.
They are: Net Sales, Cost of Goods Sold, Gross Profit, Total Operating
Expenses, net gain/loss from other activities, Income before taxes, Income
tax expense, and Net Income. These items will be listed on the right hand
column of the income statement, and help us understand which accounts we
use in what order.
First, we start by determining Net Sales. This is done by taking sales and
subtracting sales returns and allowances and sales discounts.
Then, we subtract Cost of Goods Sold from Net Sales to determine Gross
Profit.
Next, we total our operating expenses (which are expenses related to
operating the business), and subtract them from our Gross Profit to find our
Operating Income.
Then, we add any other revenues/gains and subtract any other
expenses/losses. This gives us our income by taxes.
Multiplying this number by the tax rate gives us our Income tax expense,
which when we subtract the two gives us our Net Income, the end goal.
Solution
ELM Company
For the Year ended December 31, 2010
