The following selected accounts and their current balances appear in the ledger of Kanpur Co. for the fiscal year ended June 30, 2019:

The following selected accounts and their current balances appear in the ledger of Kanpur Co. for the fiscal year ended June 30, 2019:

Cash $ 92,000 Gerri Faber, Drawing $ 300,000 Accounts Receivable 450,000 Sales 8,925,000 Merchandise Inventory 370,000 Cost of Merchandise Sold 5,620,000 Estimated Returns Inventory 5,000 Sales Salaries Expense 850,000 Office Supplies 10,000 Advertising Expense 420,000 Prepaid Insurance 12,000 Depreciation Expense — Office Equipment 220,000 Store Equipment 33,000 Accumulated Depreciation— Miscellaneous Selling Expense 18,000 Office Equipment 58,000 Office Salaries Expense 540,000 Store Equipment 650,000 Rent Expense 48,000 Accumulated Depreciation— Insurance Expense 24,000 Store Equipment 87,500 Depreciation Expense— Accounts Payable 38,500 Office Equipment 10,000 Customer Refunds Payable 10,000 Office Supplies Expense 4,000 Salaries Payable 4,000 Miscellaneous Administrative Exp. 6,000 Note Payable Interest Expense 12,000 (final payment due 2032) 140,000 Gerri Faber, Capital 431,000

Instructions

1. Prepare a multiple-step income statement.

2. Prepare a statement of owner’s equity.

3. Prepare a balance sheet, assuming that the current portion of the note payable is $7,000.

4. Briefly explain how multiple-step and single-step income statements differ.

Answer:

1.

Sales$8,925,000

Cost of merchandise sold5,620,000

Gross profit$3,305,000

Expenses:

Selling expenses:

Sales salaries expense $850,000

Advertising expense 420,000

Depreciation expense—store 

equipment33,000

Miscellaneous selling expense 18,000

Total selling expenses$1,321,000

Administrative expenses:

Office salaries expense $540,000

Rent expense48,000

Insurance expense 24,000

Depreciation expense—office 

equipment10,000

Office supplies expense 4,000

Miscellaneous administrative expense 6,000

Total administrative expenses 632,000

Total operating expenses1,953,000

Income from operations$1,352,000

Other expense:

Interest expense12,000

Net income$1,340,000

2.

Gerri Faber, capital, July 1, 2018$ 431,000

Net income for the year$1,340,000

Withdrawals(300,000)

Increase in owner’s equity1,040,000

Gerri Faber, capital, June 30, 2019$1,471,000

3.

Current assets:

Cash$ 92,000

Accounts receivable450,000

Merchandise inventory370,000

Estimated returns inventory5,000

Office supplies10,000

Prepaid insurance12,000

Total current assets$ 939,000

Property, plant, and equipment:

Office equipment $220,000

Less accumulated depreciation 58,000 $162,000

Store equipment $650,000

Less accumulated depreciation 87,500 562,500

Total property, plant, and equipment724,500

Total assets$1,663,500

Current liabilities:

Accounts payable$ 38,500

Customer refunds payable10,000

Salaries payable4,000

Note payable (current portion)7,000

Total current liabilities$ 59,500

Long-term liabilities:

Note payable (final payment due 2032)133,000

Total liabilities$ 192,500

Gerri Faber, capital1,471,000

Total liabilities and owner’s equity$1,663,500

4. The multiple-step form of income statement contains various sections for

revenues and expenses, with intermediate balances, and concludes with 

net income. In the single-step form, the total of all expenses is deducted 

from the total of all revenues. There are no intermediate balances.