2009, Online Solutions would be terminating its consulting services, and changing its
business emphasis to an Internet-based retailer.
Online’s business strategy is to focus on offering customized computer systems to
individuals and small businesses who are upgrading or purchasing new computer sys-
tems. Online’s personal service before the sale will include a no-obligation assessment
of the customer’s needs. By providing tailor-made solutions, personalized service, and
follow-up, Janet feels that Online can compete effectively against larger retailers, such
asDell Inc.orGateway. Initially, Janet plans to grow Online Solutions regionally. If
successful, Janet plans to take the company public.Multiple-Step Income Statement
The 2010 income statement for Online Solutions’ second year as an Internet retailer is
shown in Exhibit 3.^3 This form of income statement, called a multiple-step income
statement, contains several sections, subsections, and subtotals.214 Chapter 5 Accounting for Merchandise Operations
Exhibit 3
Multiple-Step Income
StatementOnline Solutions
Income Statement
For the Year Ended December 31, 2010Revenue from sales:
Sales $720,185
Less: Sales returns and allowances $ 6,140
Sales discounts 5,790 11,930
Net sales $708,255
Cost of merchandise sold 525,305
Gross profit $182,950Operating expenses:
Selling expenses:
Sales salaries expense $56,230
Advertising expense 10,860
Depr. expense—store equipment 3,100
Miscellaneous selling expense 630
Total selling expenses $ 70,820
Administrative expenses:
Office salaries expense $21,020
Rent expense 8,100
Depr. expense—office equipment 2,490
Insurance expense 1,910
Office supplies expense 610
Misc. administrative expense 760
Total administrative expenses 34,890
Total operating expenses 105,710
Income from operations $ 77,240Other income and (expense):
Rent revenue $ 600
Interest expense (2,440) (1,840)
Income before taxes $ 75,400
Income taxes 15,000
Net income $ 60,4003 We use the Online Solutions income statement for 2010 as a basis for illustration because, as will be
shown, it allows us to better illustrate the computation of the cost of merchandise sold.