Big Tommy Corporation is a local grocery store organized seven years ago as a corporation. The bookkeeper prepared the following statement (assume that all amounts are correct, but note the Incorrect terminology and format) BIG TOMMY CORPORATION

Profit and Loss

December 31

Debit Credit
Sales $275,000
Cost of Goods Sold $207,000
Sales Returns and Allowances 3,700
Sales Discounts 4,200
Salaries and Wages Expense 40,000
Office Expense 2,500
Travel Expenses 1,000
Income Tax Expense 4,980
Net Profit $275,000 $275,000
Required:

1. Prepare a properly formatted multistep income statement that would be used for internal reporting purposes. Treat Sales Returns and Allowances and Sales Discounts as contra-revenue accounts.

2. Prepare a properly formatted multistep income statement that would be used for external reporting purposes, beginning with the amount for Net Sales.

                       Big Tommy Corporation

     Profit and Loss for the year ended December 31

Sales                                                                         404,000

Cost of Goods Sold                                                 279,000

Gross Profit                                                               125,000

Operating Expenses:

Salaries and Wages Expense                   58,000

Office Expenses                                         16,000

Travel Expenses                                           1,000    75,000

Operating Income:                                                     50,000

Non-Operating Expenses

Income Tax Expense                                 15,000     15,000

Net Income                                                                 35,000

Explanation:

Multistep income statement makes a clear distinction on Operating Incomes and Expenses and Non-Operating Incomes and Expenses

Operating income is Profit generated from Primary activities of the company

Non-Operating Incomes and Expenses do not relate to the Primary activities of the firm.They occur as a result of secondary activities.

answer; test-retest;

answer; erp systems;