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Save-the-Earth Co. reports the following income statement accounts for the year ended December 31. Sales discounts $ 890 Office salaries expense 3,400 Rent expense—Office space 2,900 Advertising expense 780 Sales returns and allowances 390 Office supplies expense 780 Cost of goods sold 11,800 Sales 48,000 Insurance expense 2,400 Sales staff salaries 3,900 Required: Prepare a multiple-step income statement for the year ended December 31.

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Answer:

Multiple-step income statement for the year ended December 31.

Sales                                                                   48,000

Less Sales returns and allowances                        390

Net Sales                                                              47,610

Less Cost of goods sold                                     (11,800)

Gross Profit                                                          35,810

Less Operating Expenses :

Sales discounts                                       890

Office salaries expense                       3,400

Rent expense—Office space               2,900

Advertising expense                               780

Office supplies expense                         780

Insurance expense                              2,400

Sales staff salaries                               3,900    (15,050)

Operating  Income / (Loss)                                 20,760

Explanation:

The multiple-step income statement shows separately profit derived from Primary Activities of an Entity (Operating Profit) and the profit that includes Secondary Activities of an Entity (Net Profit)

In this case, Save-the-Earth Co derived its profit only from Primary Activities.

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