Analyze accounting methods and prepare corrected income statement (. LO 1,2, 4)
You are the accountant for Celebration Company, and your assistant has prepared the following income statement for the year ended December 31,2006.
| Celebration Company | ||
| Sales revenue | $650000 | |
| Sales returns and allowances | $18,100 | |
| Freight expenses | 2,000 | |
| Selling expenses | 48,300 | (68,400) |
| Net sales | 581,600 | |
| Expenses | ||
| Cost of goods sold | 350,000 | |
| Salary expenses | 82,000 | |
| Rent expenses | 10,000 | |
| Administrative expenses | 23,500 | |
| Dividends | 4,000 | |
| Total expenses | 469,500 | |
| Net income | $112,100 |
You have uncovered the following facts:
1. Sales revenue includes $6,000 of items that have been back-ordered. (The items have not been delivered to the customers, although the customers have paid for the items.)
2. Selling expenses includes $4,000 of allowances that were given to customers who received damaged products.
3. Rent expense includes $400 worth of rent that applies to 2011.
4. Salary expenses include $10,000 loaned to one of the executives for a boat.
a. Prepare a corrected multistep income statement for the year. Celebration shows sales as the net amount only on its income statement.
b. Write a memo to your assistant explaining why each effort you found is incorrect and what the correct account instrument should be.
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