Question
Maplewood Outfitters uses a periodic inventory system. Its adjusted trial balance at December 31, 2025 includes the following accounts. A year-end physical count valued inventory on hand at $41,200. The income tax rate is 25%.
| Account | Amount |
|---|
| Sales Revenue | $420,000 |
| Sales Returns and Allowances | 8,000 |
| Inventory, January 1 | 36,000 |
| Purchases | 248,000 |
| Purchase Returns and Allowances | 6,000 |
| Freight-In | 5,200 |
| Salaries and Wages Expense | 62,000 |
| Rent Expense | 24,000 |
| Advertising Expense | 9,000 |
| Depreciation Expense | 7,500 |
| Insurance Expense | 3,500 |
| Interest Expense | 4,000 |
Required: Prepare a multi-step income statement for the year ended December 31, 2025, showing the full cost-of-goods-sold section (net purchases, cost of goods purchased, cost of goods available for sale, and ending inventory), operating expenses, and income tax expense.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 1 — Presentation of Financial Statements
A multi-step statement earns its name from the subtotals: net sales less cost of sales gives gross profit, less operating expenses gives operating profit, and only then do non-operating items, finance costs and tax appear. Decide for every line whether it belongs above or below the operating-profit line before you place it.
Common mistakes
- Burying interest expense or investment income inside operating expenses — they sit below operating profit.
- Netting sales returns and discounts against nothing, or omitting them so revenue is reported gross rather than net.
- Presenting income tax expense as an operating expense instead of a separate deduction after pre-tax profit.
Further readingIncome statement vs balance sheet