Scenario: An inexperienced accountant prepared this condensed income statement for Simon Company, a retail firm that has been in business for a number of years.SIMON COMPANYIncome Statement For the Year Ended December 31, 2017 RevenuesNet sales$850,000Other revenues22,000872,000Cost of goods sold555,000Gross profit317,000Operating expensesSelling expenses109,000Administrative expenses103,000212,000Net earnings$105,000As an experienced, knowledgeable accountant, you review the statement and determine the following facts:Net sales consist of: sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000.Other revenues consist of sales discounts $18,000 and rent revenue $4,000.Selling expenses consist of salespersons’ salaries $80,000, depreciation on equipment $10,000, advertising $13,000, and sales commissions $6,000. The commissions represent commissions paid. At December 21, $3,000 of commissions have been earned by salespersons but have not been paid. All compensation should be recorded as Salaries and Wages Expense.Administrative expenses consist of office salaries $17,000, dividends $18,000, utilities $12,000, interest expense $2,000, and rent expense $24,000, which includes prepayments totaling $6,000 for the first quarter of 2018. Prepare a detailed multi-step income statement with a brief explanation of 700 words. Assume a 25% tax rate. Show your work on the Excel® spreadsheet and submit with your explanation.
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