Zeus and Company's income statement for the year ended December 31,2014,included the following items:

The office space is used equally by Zeus' sales and accounting departments.What amount of the above-listed items should be classified as general and administrative expenses in Zeus' multiple-step income statement?
A)$1,500,000
B)$975,000
C)$870,000
D)$1,230,000

Question

Zeus and Company's income statement for the year ended December 31,2014,included the following items:

The office space is used equally by Zeus' sales and accounting departments.What amount of the above-listed items should be classified as general and administrative expenses in Zeus' multiple-step income statement?
A)$1,500,000 
B)$975,000 
C)$870,000 
D)$1,230,000

Quizplus · Accepted Answer

To classify an item as a general and administrative expense, it should be related to the overall management of the company rather than related to the core business activities. Therefore, the rent and salaries should be allocated based on the portion used by each department. Since the office space is used equally by the sales and accounting departments, 50% of rent and salaries should be classified as general and administrative expenses, which would be $300,000 + $570,000 = $870,000.

Zeus and Company's Income Statement for the Year Ended December