The following items were among those reported on Harry's Ltd.'s income statement for the year ended December 31, 2020: $\begin{array}{llcc}
\text {Legal and audit fees........................... } &\$200,000 \
\text { Rent for office space.......................... } &470,000\
\text {interest on inventory loan.................... } &496,000\
\text { Loss on abandoned equipment used in operations....... } &82,000\
\end{array}$
The office space is used equally by Harry's sales and accounting departments. What amount should be classified as general and administrative expenses in Harry's multiple-step income statement for 2020?
A) $235,000
B) $435,000
C) $670,000
D) $931,000

Question

The following items were among those reported on Harry's Ltd.'s income statement for the year ended December 31, 2020: $\begin{array}{llcc}
  \text {Legal and audit fees...........................  } &\$200,000  \
 \text { Rent for office space.......................... } &470,000\
 \text {interest on inventory loan....................  } &496,000\
 \text { Loss on abandoned equipment used in operations....... } &82,000\
\end{array}$
 The office space is used equally by Harry's sales and accounting departments. What amount should be classified as general and administrative expenses in Harry's multiple-step income statement for 2020?
A) $235,000
B) $435,000
C) $670,000
D) $931,000

Quizplus · Accepted Answer

General and administrative expenses include all expenses related to the day-to-day operations of a business that are not directly related to the production of goods or services. 
In the given items, the expenses that can be classified as general and administrative expenses are legal and audit fees and rent for office space.

Therefore, the amount classified as general and administrative expenses should be $200,000 + ($470,000/2) = $435,000.

Interest on inventory loan and loss on abandoned equipment used in operations are not classified as general and administrative expenses as they are directly related to the production of goods or services.

The Following Items Were Among Those Reported on Harry's Ltd