Problem 5b Prepare A Correct Detailed Multiple Step Income

Problem 5 5bprepare A Correct Detailed Multiple Step Income Statement

Prepare a correct detailed multiple-step income statement for Wright Company, assuming a tax rate of 25%. The statement should include net sales, gross profit, operating expenses, income from operations, other revenues and gains, other expenses and losses, income before income taxes, income tax expense, and net income. Use the provided facts and corrections to prepare an accurate and detailed financial statement that reflects the company's financial performance for December 31, 2014.

Paper For Above instruction

The preparation of an accurate and detailed multi-step income statement is fundamental in presenting a precise picture of a company’s financial performance. For Wright Company, this entails accurately calculating net sales, gross profit, operating expenses, and net income, considering various components such as revenue adjustments and expense classifications. This process involves meticulous review of the financial data, correcting inconsistencies, and adhering to accounting principles to ensure the presentation accurately reflects the company's economic activities for the fiscal period ending December 31, 2014.

To begin with, the net sales figure must be correctly computed by subtracting freight-out from gross sales, resulting in an adjusted net sales figure. In this case, gross sales of $972,000 minus freight-out ($20,000) give net sales of $952,000, aligning with the initial provided figure. Additionally, other revenues include sales discounts ($12,000) and interest revenue ($4,000), which should be aggregated to determine total other revenues of $16,000.

The cost of goods sold (COGS) needs to be determined based on inventory data and associated assumptions, though specifics are not directly provided here. The gross profit is computed by subtracting COGS from net sales. Operating expenses are to be categorized into selling expenses and administrative expenses, summing to total operating expenses. For example, selling expenses include salaries ($88,000), depreciation ($4,000), returns and allowances ($46,000), advertising ($12,000), and commissions ($10,000). Administrative expenses include office salaries, utilities, interest, and rent, adjusted for prepayments and accrued expenses to ensure accuracy.

After calculating gross profit and total operating expenses, income from operations is derived by subtracting operating expenses from gross profit. Then, other revenues and expenses—like interest income and interest expense—are incorporated to compute income before income taxes. The income tax expense is calculated at the company's tax rate, here 25% of the income before taxes. Finally, net income is obtained by subtracting the income tax expense from income before taxes, providing the key profitability metric.

This comprehensive approach ensures the income statement reflects all relevant financial data, corrections, and classifications, which is essential for accurate financial reporting and analysis. A detailed, multi-step income statement not only complies with accounting standards but also provides valuable insights into the company's operational efficiency, profitability, and overall financial health for the fiscal year ending December 31, 2014.

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