In Year 1, Kim Company sold land for $107.000 cash. The land had originally cost $43,000....

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In Year 1, Kim Company sold land for $107.000 cash. The land had originally cost $43,000. Also, Kim sold inventory that had c

b. Assume that normal operating activities grow evenly by 25% during Year 2. Prepare a Year 2 multistep income statement for

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Answer 1

Answer #1

(a) Multi step income statement for year 1:

Description	Amount
Net sales	$284000
Less: Cost of sales	($199000)
Gross margin	$85000
Less: Operating expenses	($39000)
Income from operations	$46000
Add: Gain on sale of land	$64000
Net income	$110000

In the above income statement, gain on sale of land has been calculated as below:

Gain on sale of land = Sale proceeds - Cost of land

Gain on sale of land = $107000 - $43000 = $64000

(b) When normal activity increases by 25%, then it will increase sales, cost of sales and operating expenses by 25%. There will be no effect on gain on sale of land. New figures are as below:

Net sales = 125% * $284000 = $355000

Cost of sales = 125% * $199000 = $248750

Operating expenses = 125% * $39000 = $48750

Now, multi step income statement for year 2 is given below:

Description	Amount
Net sales	$355000
Less: Cost of sales	($248750)
Gross margin	$106250
Less: Operating expenses	($48750)
Income from operations	$57500
Add: Gain on sale of land	$64000
Net income	$121500

(c) Year 1 net income = $110000

Year 2 net income = $121500

Percentage change in net income = Year 2 net income - Year 1 net income / Year 1 net income * 100

Putting the values in the above formula, we get,

Percentage change in net income = $121500 - $110000 / $110000 * 100

Percentage change in net income = $11500 / $110000 * 100 = 10.5%

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In Year 1, Kim Company sold land for $107.000 cash. The land had originally cost $43,000....

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