CORBIN ENTERPRISES Income Statement

Topics: Revenue, Income statement, Expense Pages: 2 (269 words) Published: January 28, 2015
Refer to the list of income statement items in Problem 2-6A. Assume that Corbin Enterprises classifies all operating expenses into two categories: (1) Selling and
(2) General and administrative.

Required
1. Prepare a multiple-step income statement for the year ended December 31, 2010. 2. What advantages do you see in this form for the income statement? 3. Compute Corbin’s profit margin.
4. Comment on Corbin’s profitability. What other factors need to be taken into account to assess Corbin’s profitability?

SOLUTION

1.Multiple-step income statement:
CORBIN ENTERPRISES
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2010

Sales$350,000
Cost of goods sold150,000
Gross profit$200,000
Operating expenses:
Selling expenses:
Advertising$9,000
Rent—salesperson’s car18,000
Total selling expenses$27,000
General and administrative expenses:
Depreciation—computer$4,500
Rent—office26,400
Supplies—office1,300
Wages—office 45,600
Utilities6,750
Total general and administrative expenses84,550
Total operating expenses111,550
Income from operations$88,450
Other revenues and expenses:
Interest expense$1,900
Dividend revenue2,700
Excess of other revenues over other expenses800
Income before taxes$89,250
Income tax expense30,700
Net income$58,550

2.The main advantages of the multiple-step income statement are the groupings of various items and the provision of important subtotals such as income from operations.

3.Profit Margin= Net Income/Sales
= $58,550/$350,000 = 16.7%

4.A profit margin of 16.7% means that for every dollar of sales the company has net income of $0.167. This would appear to be a good profit margin, but it would be important to compare the profit margin with prior years and with other companies in the same industry.
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