
Concept Introduction:
Adjusting entries:
Multiple-step income statement: It is one of the most commonly used methods to derive the net income as it uses multiple subtractions under multiple heads. It gives more and appropriate information to the users of the financial statement.
Single-step income statement: It is one of the simple methods to derive the net income as it uses just one subtraction. It takes all the revenues together and deducts all the expenses in one shot without bifurcating them under different heads.
Acid test ratio: It is also known as the
Gross margin ratio: It depicts the margin that a business is earning from its operating activities in terms of percentage of net sales.
To Prepare/Determine:
- Adjusting journal entries at year end for the given merchandise activities.
- Multiple step income statement for fiscal year 2017.
- Single step income statement for fiscal year 2017.
- The different ratios like current ratio, acid- test ratio and gross margin ratio.

Explanation of Solution
- Adjusting journal entries
S. No. | Particulars | Debit | Credit |
a | Store supplies expense | $6,000 | |
To Store supplies account | $6,000 | ||
b | Insurance expense account | $2,800 | |
To Prepaid insurance account | $2,800 | ||
c | Depreciation expense account- Store equipment | $3,000 | |
To Accumulated Dep- Store equipment | $3,000 | ||
D | Cost of goods sold account | $2,700 | |
To Inventory account | $2,700 |
- Multiple-step income statement-
Income Statement Of Foster Products company |
||
Sales Revenue: | ||
Gross Sales | $227,100 | |
Less: Sales discount | $(1,000) | |
Less: Sales returns and allowances | $(5,000) | |
Net sales | $221,100 | |
Less: COGS | $78,500 | |
Gross Profit | $142,600 | |
Operating Expenses | ||
Selling Expenses: | ||
Depreciation expense- Store equipment | $3,000 | |
Advertising expense | $17,800 | |
Store supplies expense | $6,000 | |
Administrative expenses: | ||
Salaries expense | $63,000 | |
Insurance expense | $2,800 | |
Rent expense | $26,000 | |
Total Operating expense | $118,600 | |
Net income | $24,000 |
- Single-step income statement-
Income Statement of Foster Products company |
|
Revenue: | |
Sales Revenue | $221,100 |
Expenses | |
COGS | $78,500 |
Depreciation expense- Store equipment | $3,000 |
Advertising expense | $17,800 |
Salaries expense | $63,000 |
Insurance expense | $2,800 |
Rent expense | $26,000 |
Store supplies expense | $6,000 |
Net Income | $24,000 |
- The current ratio, acid test ratio and gross margin ratio
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Chapter 5 Solutions
Loose Leaf for Fundamental Accounting Principles
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