P5-5B An inexperienced accountant prepared this condensed income statement for
Wright Company, a retail firm that has been in business for a number of years.
For the Year Ended December 31, 2014
Net sales $952,000
Other revenues 16,000
Cost of goods sold 548,000
Gross profit 420,000
Selling expenses 160,000
Administrative expenses 104,000
Net earnings $156,000
As an experienced, knowledgeable accountant, you review the statement and determine the following facts.
1. Net sales consist of sales $972,000, less freight-out on merchandise sold $20,000.
2. Other revenues consist of sales discounts $12,000 and interest revenue $4,000.
3. Selling expenses consist of salespersons’ salaries $88,000; depreciation on equipment $4,000; sales returns and allowances $46,000; advertising $12,000; and sales commissions $10,000. All compensation should be recorded as Salaries and Wages Expense.
4. Administrative expenses consist of office salaries $54,000; dividends $14,000; utilities $13,000; interest expense $3,000; and rent expense $20,000, which includes
prepayments totaling $2,000 for the first month of 2015. The utilities represent
utilities paid. At December 31, utility expense of $3,000 has been incurred but not
Prepare a correct detailed multiple-step income statement. Assume a tax rate of 25%.
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