P5 3a accounting

CHAPTER 5

Accounting for Merchandising Operations

ASSIGNMENT CLASSIFICATION TABLE

Learning Objectives

Questions

Brief

Exercises

Do It!

Exercises

A

Problems

B

Problems

*1. Identify the differences between service and merchandising companies.

2, 3, 4

1

1

*2. Explain the recording of purchases under a perpetual inventory system.

5, 6, 7, 8

2, 4

1

2, 3, 4, 11

1A, 2A, 4A

1B, 2B, 4B

*3. Explain the recording of sales revenues under a perpetual inventory system.

9, 10, 11

2, 3

2

3, 4, 5, 11

1A, 2A, 4A

1B, 2B, 4B

*4. Explain the steps in the accounting cycle for a merchandising company.

1, 12, 13, 14

5, 6

3

6, 7, 8

3A, 4A, 5A

3B, 4B

*5. Distinguish between a multiple-step and a single-step income statement.

15, 16, 17, 18, 19, 20

7, 8, 9

4

6, 9, 10, 12, 13, 14

2A, 3A, 5A 6A, 7A

2B, 3B 5B, 6B

*6. Prepare a worksheet for a merchandising company

21

10

15, 16

5A

*7. Explain the recording of purchases and sales of inventory under a periodic inventory system.

22, 23

11, 12, 13, 14, 15

17, 18, 19, 20, 21, 22

6A, 7A, 8A

5B, 6B, 7B

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendices to the chapter.

ASSIGNMENT CHARACTERISTICS TABLE

Problem

Number

Description

Difficulty

Level

Time Allotted (min.)

1A

Journalize purchase and sales transactions under a perpetual inventory system.

Simple

20–30

2A

Journalize, post, and prepare a partial income statement.

Simple

30–40

3A

Prepare financial statements and adjusting and closing entries.

Moderate

40–50

4A

Journalize, post, and prepare a trial balance.

Simple

30–40

*5A

Complete accounting cycle beginning with a worksheet.

Moderate

50–60

*6A

Determine cost of goods sold and gross profit under periodic approach.

Moderate

40–50

*7A

Calculate missing amounts and assess profitability.

Moderate

20–30

*8A

Journalize, post, and prepare trial balance and partial income statement using periodic approach.

Simple

30–40

1B

Journalize purchase and sales transactions under a perpetual inventory system.

Simple

20–30

2B

Journalize, post, and prepare a partial income statement.

Simple

30–40

3B

Prepare financial statements and adjusting and closing entries.

Moderate

40–50

4B

Journalize, post, and prepare a trial balance.

Simple

30–40

*5B

Determine cost of goods sold and gross profit under periodic approach.

Moderate

40–50

*6B

Calculate missing amounts and assess profitability.

Moderate

20–30

*7B

Journalize, post, and prepare trial balance and partial income statement using periodic approach.

Simple

30–40

WEYGANDT ACCOUNTING PRINCIPLES 11E

CHAPTER 5

ACCOUNTING FOR MERCHANDISING OPERATIONS

Number

LO

BT

Difficulty

Time (min.)

BE1

1

AP

Simple

4–6

BE2

2, 3

AP

Simple

2–4

BE3

3

AP

Simple

6–8

BE4

2

AP

Simple

6–8

BE5

4

AP

Simple

1–2

BE6

4

AP

Simple

2–4

BE7

5

AP

Simple

2–4

BE8

5

C

Simple

4–6

BE9

5

AP

Simple

4–6

BE10

6

K

Simple

2–4

BE11

7

AP

Simple

4–6

BE12

7

AP

Simple

4–6

BE13

7

AP

Simple

3–5

BE14

7

AP

Simple

6–8

BE15

7

AP

Simple

4–6

DI1

2

AP

Simple

2–4

DI2

3

AP

Simple

4–6

DI3

4

AP

Simple

4–6

DI4

5

AP

Simple

10–12

EX1

1

C

Simple

3–5

EX2

2

AP

Simple

8–10

EX3

2, 3

AP

Simple

8–10

EX4

2, 3

AP

Simple

8–10

EX5

3

AP

Simple

8–10

EX6

4, 5

AP

Simple

6–8

EX7

4

AP

Simple

6–8

EX8

4

AP

Simple

8–10

EX9

5

AP

Simple

8–10

EX10

5

AP

Simple

8–10

EX11

2, 3

AN

Moderate

6–8

EX12

5

AP

Simple

8–10

EX13

5

AN

Simple

6–8

ACCOUNTING FOR MERCHANDISING OPERATIONS (Continued)

Number

LO

BT

Difficulty

Time (min.)

EX14

5

AN

Moderate

8–10

EX15

6

AP

Simple

2–4

EX16

6

AP

Simple

8–10

EX17

7

AP

Simple

6–8

EX18

7

AP

Simple

8–10

EX19

7

AN

Moderate

10–12

EX20

7

AP

Simple

8–10

EX21

7

AP

Simple

8–10

EX22

7

AP

Simple

6–8

P1A

2, 3

AP

Simple

20–30

P2A

2, 3, 5

AP

Simple

30–40

P3A

4, 5

AN

Moderate

40–50

P4A

2–4

AP

Simple

30–40

P5A

4–6

AP

Moderate

50–60

P6A

5, 7

AP

Moderate

40–50

P7A

5, 7

AN

Moderate

20–30

P8A

7

AP

Simple

30–40

P1B

2, 3

AP

Simple

20–30

P2B

2, 3, 5

AP

Simple

30–40

P3B

4, 5

AN

Moderate

40–50

P4B

2–4

AP

Simple

30–40

P5B

5, 7

AP

Moderate

40–50

P6B

5, 7

AN

Moderate

20–30

P7B

7

AP

Simple

30–40

BYP1

5

AN, E

Simple

10–15

BYP2

5

AN, E

Simple

15–20

BYP3

5

AN, E

Simple

15–20

BYP4

—

AP

Simple

10–15

BYP5

5

AN, S, E

Moderate

20–30

BYP6

3

C

Simple

10–15

BYP7

2

E

Simple

10–15

BYP8

—

E

Simple

5–10

BYP9

—

AP

Moderate

10–15

ANSWERS TO QUESTIONS

 1. (a) Disagree. The steps in the accounting cycle are the same for both a merchandising company and a service company.

(b) The measurement of income is conceptually the same. In both types of companies, net income (or loss) results from the matching of expenses with revenues.

 2. The normal operating cycle for a merchandising company is likely to be longer than in a service company because inventory must first be purchased and sold, and then the receivables must be collected.

 3. (a) The components of revenues and expenses differ as follows:

Merchandising

Service

Revenues

Expenses

Sales Revenue

Cost of Goods Sold and Operating

Fees, Rents, etc.

Operating (only)

(b) The income measurement process is as follows:

Sales

Revenue

Less

Cost of

Goods

Sold

Equals

Gross

Profit

Less

Operating

Expenses

Equals

Net

Income

 4. Income measurement for a merchandising company differs from a service company as follows: (a) sales are the primary source of revenue and (b) expenses are divided into two main categories: cost of goods sold and operating expenses.

 5. In a perpetual inventory system, cost of goods sold is determined each time a sale occurs.

 6. The letters FOB mean Free on Board. FOB shipping point means that goods are placed free on board the carrier by the seller. The buyer then pays the freight and debits Inventory. FOB destination means that the goods are placed free on board to the buyer’s place of business. Thus, the seller pays the freight and debits Freight-out.

 7. Credit terms of 2/10, n/30 mean that a 2% cash discount may be taken if payment is made within 10 days of the invoice date; otherwise, the invoice price, less any returns, is due 30 days from the invoice date.

 8. July 24 Accounts Payable ($2,000 – $200) 1,800

Inventory ($1,800 X 2%)    36

Cash ($1,800 – $36) 1,764

 9. Agree. In accordance with the revenue recognition principle, sales revenues are generally con​sidered to be recognized when the goods are transferred from the seller to the buyer; that is, when the exchange transaction occurs. The recognition of revenue is not dependent on the collection of credit sales.

10. (a) The primary source documents are: (1) cash sales—cash register tapes and (2) credit sales— sales invoice.

Questions Chapter 5 (Continued)

(b) The entries are:

Debit

Credit

Cash sales—

Cash

Sales Revenue

Cost of Goods Sold

Inventory

XX

XX

XX

XX

Credit sales—

Accounts Receivable

Sales Revenue

Cost of Goods Sold

Inventory

XX

XX

XX

XX

11. July 19 Cash ($800 – $16)   784

Sales Discounts ($800 X 2%)    16

Accounts Receivable ($900 – $100)   800

12. The perpetual inventory records for merchandise inventory may be incorrect due to a variety of causes such as recording errors, theft, or waste.

13. Two closing entries are required:

(1) Sales Revenue 200,000

Income Summary 200,000

(2) Income Summary 145,000

Cost of Goods Sold 145,000

14. Of the merchandising accounts, only Inventory will appear in the post-closing trial balance.

15. Sales revenues $105,000

Cost of goods sold 70,000

Gross profit $ 35,000

Gross profit rate: $35,000 ÷ $105,000 = 33.3%

16. Gross profit $370,000

Less: Net income 240,000

Operating expenses $130,000

17. There are three distinguishing features in the income statement of a merchandising company: (1) a sales revenues section, (2) a cost of goods sold section, and (3) gross profit.

Questions Chapter 5 (Continued)

*18. (a) The operating activities part of the income statement has three sections: sales revenues, cost of goods sold, and operating expenses.

(b) The nonoperating activities part consists of two sections: other revenues and gains, and other expenses and losses.

*19. The single-step income statement differs from the multiple-step income statement in that: (1) all data are classified into two categories: revenues and expenses, and (2) only one step, subtracting total expenses from total revenues, is required in determining net income (or net loss).

20. Apple’s gross profit rate for 2011 was 40.5% [($108,249 – $64,431) ÷ $108,249]. Its gross profit rate in 2010 was 39.4% [($65,225 – $39,541) ÷ $65,225] so the rate increased from 2010 to 2011.

*21. The columns are:

(a) Inventory—Trial Balance (Dr.), Adjusted Trial Balance (Dr.), and Balance Sheet (Dr.).

(b) Cost of Goods Sold—Trial Balance (Dr.), Adjusted Trial Balance (Dr.), and Income Statement (Dr.).

*22.

Accounts

Added/Deducted

Purchase Returns and Allowances

Purchase Discounts

Freight-in

Deducted

Deducted

Added

*23. July 24 Accounts Payable ($3,000 – $200) 2,800

Purchase Discounts ($2,800 X 2%) 56

Cash ($2,800 – $56) 2,744

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 5-1

(a) Cost of goods sold = $45,000 ($75,000 – $30,000).

Operating expenses = $19,200 ($30,000 – $10,800).

(b) Gross profit = $38,000 ($108,000 – $70,000).

Operating expenses = $8,500 ($38,000 – $29,500).

(c) Sales Revenue = $163,500 ($83,900 + $79,600).

Net income = $40,100 ($79,600 – $39,500).

BRIEF EXERCISE 5-2

Radomir Company

Inventory 780

Accounts Payable 780

Lemke Company

Accounts Receivable 780

Sales Revenue 780

Cost of Goods Sold 470

Inventory 470

BRIEF EXERCISE 5-3

(a) Accounts Receivable 900,000

Sales Revenue 900,000

Cost of Goods Sold 620,000

Inventory 620,000

(b) Sales Returns and Allowances 90,000

Accounts Receivable 90,000

Inventory  62,000

Cost of Goods Sold  62,000

BRIEF EXERCISE 5-3 (Continued)

(c) Cash ($810,000 – $16,200) 793,800

Sales Discounts ($810,000 X 2%)  16,200

Accounts Receivable 810,000

  ($900,000 – $90,000)

BRIEF EXERCISE 5-4

(a) Inventory 900,000

Accounts Payable 900,000

(b) Accounts Payable 90,000

Inventory 90,000

(c) Accounts Payable ($900,000 – $90,000) 810,000

Inventory 

  ($810,000 X 2%) 16,200

Cash ($810,000 – $16,200) 793,800

BRIEF EXERCISE 5-5

Cost of Goods Sold 2,300

Inventory 2,300

BRIEF EXERCISE 5-6

Sales Revenue 195,000

Income Summary 195,000

Income Summary 119,000

Cost of Goods Sold 117,000

Sales Discounts   2,000

BRIEF EXERCISE 5-7

ARNDT COMPANY

Income Statement (Partial)

For the Month Ended October 31, 2014

Sales revenues

Sales revenue ($280,000 + $100,000) $380,000

Less: Sales returns and allowances $11,000

Sales discounts 5,000 16,000

Net sales $364,000

BRIEF EXERCISE 5-8

As the name suggests, numerous steps are required in determining net income in a multiple-step income statement. In contrast, only one step is required to compute net income in a single-step income statement. A multiple-step statement has five sections whereas a single-step statement has only two sections. The multiple-step statement provides more detail than a single-step statement, but net income is the same under both statements.

Some of the differences in presentation can be seen from the comparative information presented below.

(1) Multiple-Step Income Statement

Item

Section

a.

b.

c.

d.

Gain on sale of equipment

Interest expense

Casualty loss from vandalism

Cost of goods sold

Other revenues and gains

Other expenses and losses

Other expenses and losses

Cost of goods sold

(2) Single-Step Income Statement

Item

Section

a.

b.

c.

d.

Gain on sale of equipment

Interest expense

Casualty loss from vandalism

Cost of goods sold

Revenues

Expenses

Expenses

Expenses

BRIEF EXERCISE 5-9

(a) Net sales = $510,000 – $15,000 = $495,000.

(b) Gross profit = $495,000 – $330,000 = $165,000.

(c) Income from operations = $165,000 – $110,000 = $55,000.

(d) Gross profit rate = $165,000 ÷ $495,000 = 33.3%.

*BRIEF EXERCISE 5-10

(a) Cash: Trial balance debit column; Adjusted trial balance debit column; Balance sheet debit column.

(b) Inventory: Trial balance debit column; Adjusted trial balance debit column; Balance sheet debit column.

(c) Sales revenue: Trial balance credit column; Adjusted trial balance credit column, Income statement credit column.

(d) Cost of goods sold: Trial balance debit column, Adjusted trial balance debit column, Income statement debit column.

*BRIEF EXERCISE 5-11

Purchases $450,000

Less: Purchase returns and allowances $13,000

Purchase discounts 8,000 21,000

Net purchases $429,000

Net purchases $429,000

Add: Freight-in 16,000

Cost of goods purchased $445,000

*BRIEF EXERCISE 5-12

Net sales $730,000

Beginning inventory $ 60,000

Add: Cost of goods purchased* 445,000

Cost of goods available for sale 505,000

Ending inventory 90,000

Cost of goods sold 415,000

Gross profit $315,000

*Information taken from Brief Exercise 5-11.

*BRIEF EXERCISE 5-13

(a) Purchases 900,000

Accounts Payable 900,000

(b) Accounts Payable 130,000

Purchase Returns and Allowances 130,000

(c) Accounts Payable ($900,000 – $130,000) 770,000

Purchase Discounts ($770,000 X 2%) 15,400

Cash ($770,000 – $15,400) 754,600

*BRIEF EXERCISE 5-14

Inventory (ending) 30,000

Sales Revenue 180,000

Purchase Returns and Allowances 30,000

Income Summary 240,000

Income Summary 162,000

Purchases 120,000

Sales Discounts 2,000

Inventory (beginning) 40,000

*BRIEF EXERCISE 5-15

(a) Cash: Trial balance debit column; Adjusted trial balance debit column; Balance sheet debit column.

(b) Beginning inventory: Trial balance debit column; Adjusted trial balance debit column; Income statement debit column.

(c) Accounts payable: Trial balance credit column; Adjusted trial balance credit column; Balance sheet credit column.

(d) Ending inventory: Income statement credit column; Balance sheet debit column.

SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 5-1

Oct. 5 Inventory 5,000

Accounts Payable 5,000

(To record goods purchased on account)

Oct. 8 Accounts Payable 650

Inventory 650

(To record return of defective goods)

DO IT! 5-2

Oct. 5 Accounts Receivable 5,000

Sales Revenue 5,000

(To record credit sales)

Cost of Goods Sold 3,100

Inventory 3,100

(To record cost of goods sold on account)

Oct. 8 Sales Returns and Allowances 650

Accounts Receivable 650

(To record credit granted for receipt of returned goods)

Inventory 100

Cost of Goods Sold 100

(To record fair value of goods returned)

DO IT! 5-3

Dec. 31 Sales Revenue 156,000

Interest Revenue 5,000

Income Summary 161,000

(To close accounts with credit balances)

Income Summary 127,800

Cost of Goods Sold 92,400

Sales Returns and Allowances 4,000

Sales Discounts 3,000

Freight-Out 1,500

Utilities Expense 7,400

Salaries and Wages Expense 19,500

(To close accounts with debit balances)

DO IT! 5-4

Account

Financial Statement

Classification

Accounts Payable

Balance sheet

Current liabilities

Accounts Receivable

Balance sheet

Current assets

Accumulated Depreciation— Buildings

Balance sheet

Property, plant, and equipment

Cash

Balance sheet

Current assets

Casualty Loss from Vandalism

Income statement

Other expenses and losses

Cost of Goods Sold

Income statement

Cost of goods sold

Depreciation Expense

Income statement

Operating expenses

Equipment

Balance sheet

Property, plant, and equipment

Freight-Out

Income statement

Operating expenses

Insurance Expense

Income statement

Operating expenses

Interest Payable

Balance sheet

Current liabilities

Inventory

Balance sheet

Current assets

Land

Balance sheet

Property, plant, and equipment

Notes Payable (due in 5 years)

Balance sheet

Long-term liabilities

Owner’s Capital

Owner’s equity statement

Beginning balance

Owner’s Drawings

Owner’s equity statement

Deduction section

Property Taxes Payable

Balance sheet

Current liabilities

Salaries and Wages Expense

Income statement

Operating expenses

Salaries and Wages Payable

Balance sheet

Current liabilities

Sales Returns and Allowances

Income statement

Sales revenues

Sales Revenue

Income statement

Sales revenues

Unearned Rent Revenue

Balance sheet

Current liability

Utilities Expense

Income statement

Operating expenses

SOLUTIONS TO EXERCISES

EXERCISE 5-1

1. True.

2. False. For a merchandiser, sales less cost of goods sold is called gross profit.

3. True.

4. True.

5. False. The operating cycle of a merchandiser differs from that of a service company. The operating cycle of a merchandiser is ordinarily longer.

6. False. In a periodic inventory system, no detailed inventory records of goods on hand are maintained.

7. True.

8. False. A perpetual inventory system provides better control over inven​tories than a periodic system.

EXERCISE 5-2

(a) (1) April  5 Inventory 23,000

Accounts Payable 23,000

(2) April  6 Inventory    900

Cash    900

(3) April  7 Equipment 26,000

Accounts Payable 26,000

(4) April  8 Accounts Payable  3,000

Inventory  3,000

(5) April 15 Accounts Payable 20,000

  ($23,000 – $3,000)

Inventory

  [($23,000 – $3,000) X 2%] 400

Cash ($20,000 – $400) 19,600

(b) May  4 Accounts Payable 20,000

Cash 20,000

EXERCISE 5-3

Sept.  6 Inventory (80 X $20)  1,600

Cash  1,600

 9 Inventory     80

Cash     80

10 Accounts Payable     63

Inventory     63

12 Accounts Receivable (26 X $31)    806

Sales Revenue    806

Cost of Goods Sold (26 X $21)    546

Inventory    546

14 Sales Returns and Allowances    31

Accounts Receivable    31

Inventory   21

Cost of Goods Sold    21

20 Accounts Receivable (30 X $32)   960

Sales Revenue   960

Cost of Goods Sold (30 X $21)   630

Inventory   630

EXERCISE 5-4

(a) June 10 Inventory 8,000

Accounts Payable 8,000

11 Inventory   400

Cash   400

12 Accounts Payable   300

Inventory   300

19 Accounts Payable ($8,000 – $300) 7,700

Inventory

  ($7,700 X 2%) 154

Cash ($7,700 – $154) 7,546

EXERCISE 5-4 (Continued)

(b) June 10 Accounts Receivable 8,000

Sales Revenue 8,000

Cost of Goods Sold 4,800

Inventory 4,800

12 Sales Returns and Allowances   300

Accounts Receivable   300

Inventory   70

Cost of Goods Sold   70

19 Cash ($7,700 – $154) 7,546

Sales Discounts ($7,700 X 2%)   154

Accounts Receivable

  ($8,000 – $300) 7,700

EXERCISE 5-5

(a) 1. Dec.  3 Accounts Receivable 570,000

Sales Revenue 570,000

Cost of Goods Sold 350,000

Inventory 350,000

2. Dec.  8 Sales Returns and Allowances  20,000

Accounts Receivable  20,000

3. Dec. 13 Cash ($550,000 – $11,000) 539,000

Sales Discounts

  [($570,000 – $20,000) X 2%]   11,000

Accounts Receivable

  ($570,000 – $20,000) 550,000

(b) Cash 550,000

Accounts Receivable

  ($570,000 – $20,000) 550,000

EXERCISE 5-6

(a) TSIA COMPANY

Income Statement (Partial)

For the Year Ended October 31, 2014

Sales revenues

Sales revenue $820,000

Less: Sales returns and allowances $25,000

Sales discounts 13,000 38,000

Net sales $782,000

Note: Freight-out is a selling expense.

(b) (1) Oct. 31 Sales Revenue 820,000

Income Summary 820,000

(2) 31 Income Summary  38,000

Sales Returns and

  Allowances  25,000

Sales Discounts  13,000

EXERCISE 5-7

(a) Cost of Goods Sold 1,100

Inventory 1,100

(b) Sales Revenue 115,000

Income Summary 115,000

Income Summary 93,000

Cost of Goods Sold ($60,000 + $1,100) 61,100

Operating Expenses 29,000

Sales Returns and Allowances 1,700

Sales Discounts 1,200

Income Summary ($115,000 – $93,000) 22,000

Owner’s Capital 22,000

EXERCISE 5-8

(a) Cost of Goods Sold     600

Inventory     600

(b) Sales Revenue 380,000

Income Summary 380,000

Income Summary 335,600

Cost of Goods Sold ($218,000 + $600) 218,600

Freight-Out   7,000

Insurance Expense  12,000

Rent Expense  20,000

Salaries and Wages Expense  55,000

Sales Discounts  10,000

Sales Returns and Allowances  13,000

Income Summary ($380,000 – $335,600)  44,400

Owner’s Capital  44,400

EXERCISE 5-9

(a) FURLOW COMPANY

Income Statement

For the Month Ended March 31, 2014

Sales revenues

Sales revenue $380,000

Less: Sales returns and allowances $13,000

Sales discounts 8,000 21,000

Net sales 359,000

Cost of goods sold 212,000

Gross profit 147,000

Operating expenses

Salaries and wages expense 58,000

Rent expense 32,000

Freight-out 7,000

Insurance expense 6,000

Total operating expenses 103,000

Net income $ 44,000

(b) Gross profit rate = $147,000 ÷ $359,000 = 40.95%.

EXERCISE 5-10

(a) LEMERE COMPANY

Income Statement

For the Year Ended December 31, 2014

Net sales $2,200,000

Cost of goods sold 1,289,000

Gross profit  911,000

Operating expenses 725,000

Income from operations    186,000

Other revenues and gains

Interest revenue  $28,000

Other expenses and losses

Interest expense $70,000

Loss on disposal of plant

assets 17,000 87,000 59,000

Net income $ 127,000

(b) LEMERE COMPANY

Income Statement

For the Year Ended December 31, 2014

Revenues

Net sales $2,200,000

Interest revenue 28,000

Total revenues  2,228,000

Expenses

Cost of goods sold $1,289,000

Operating expenses    725,000

Interest expense     70,000

Loss on disposal of plant assets 17,000

Total expenses 2,101,000

Net income $ 127,000

EXERCISE 5-11

1. Sales Returns and Allowances 195

Sales Revenue 195

2. Supplies 180

Cash 180

Accounts Payable 180

Inventory 180

3. Sales Discounts  215

Sales Revenue 215

4. Inventory  20

Cash 180

Freight-out 200

EXERCISE 5-12

(a) $900,000 – $522,000 = $378,000.

(b) $378,000/$900,000 = 42%. The gross profit rate is generally considered to be more useful than the gross profit amount. The rate expresses a more meaningful (qualitative) relationship between net sales and gross profit. The gross profit rate tells how many cents of each sales dollar go to gross profit. The trend of the gross profit rate is closely watched by financial statement users, and is compared with rates of competitors and with industry averages. Such comparisons provide information about the effectiveness of a company’s purchasing function and the soundness of its pricing policies.

(c) Income from operations is $153,000 ($378,000 – $225,000), and net income is $142,000 ($153,000 – $11,000).

(d) The amount shown for net income is the same in a multiple-step income statement and a single-step income statement. Both income statements report the same revenues and expenses, but in different order. Therefore, net income in Cruz’s single-step income statement is also $142,000.