Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 81

Preparing a Multistep Income Statement with Sales Discounts and Sales Returns and Allowances and Computinq the Gross Profit Percentage
Psymon Company, Inc., sells construction equipment. The annual fiscal period ends on December 31. The following adjusted trial balance was created from the general ledger accounts on December 31, 2013:

Required:
1. Prepare a multistep income statement that would be used for internal reporting purposes. Treat Sales Discounts and Sales Returns and Allowances as contra-revenue accounts.
TIP : Some of the accounts listed will appear on the balance sheet rather than the income statement.
2. Prepare a multistep income statement that would be used for external reporting purposes, beginning with the amount for Net Sales.
3. Compute and interpret the gross profit percentage (using the formula shown in this chapter).