PROBLEM 5-5B

 

Prepare a correct detailed multiple-step income statement.  Assume a tax rate of 25%.

 

WRIGHT COMPANY
Income Statement
For the Month Ended December 31, 2014
Sales Revenues
Account title		Amount
Account title		Amount
Account title		Amount
Net Sales
Cost of goods sold
Gross profit	Amount
Operating Expenses
Account title	Amount
Account title	Amount
Account title	Amount
Account title	Amount
Account title	Amount
Account title	Amount
Account title	Amount
Total operating expenses		Amount
Income from operations		Amount
Other revenues and gains
Account title	Amount
Other expenses and losses
Account title	Amount	Amount (Total)
Income before income taxes
Income tax expense
Net Income

 

P5-5B

An inexperienced accountant prepared this condensed income statement for

Wright Company, a retail firm that has been in business for a number of years.

WRIGHT COMPANY

Income Statement

For the Year Ended December 31, 2014

Revenues

Net sales $952,000

Other revenues 16,000

968,000

Cost of goods sold 548,000

Gross profit 420,000

Operating expenses

Selling expenses 160,000

Administrative expenses

104,000

264,000

Net earnings $156,000

As an experienced, knowledgeable accountant, you review the statement and determine

the following facts.

1. Net sales consist of sales $972,000, less freight-out on merchandise sold $20,000.

2. Other revenues consist of sales discounts $12,000 and interest revenue $4,000.

3. Selling expenses consist of salespersons’ salaries $88,000; depreciation on equip-

ment $4,000; sales returns and allowances $46,000; advertising $12,000; and sales

commissions $10,000. All compensation should be recorded as Salaries and Wages

Expense.                                                                                   

4. Administrative expenses consist of office salaries $54,000; dividends $14,000; utili-

ties $13,000; interest expense $3,000; and rent expense $20,000, which includes

prepayments totaling $2,000 for the first month of 2015. The utilities represent

utilities paid. At December 31, utility expense of $3,000 has been incurred but not

paid.

 

 

 

 

 

 

Problem 6-2B

 

(a) Determine the Cost of Goods Available for Sale

 

Date	Explanation	Units	Unit Cost	Total Cost
	Total

 

(b) Determine the ending inventory and cost of goods sold under each of the assumed cost flow methods.  Prove the accuracy of the cost of goods sold under FIFO and LIFO.

FIFO

 

(1) Ending Inventory				(2) Cost of Goods Sold
Date	Units	Unit Cost	Total Cost	Cost of goods available for sale	Amount
	Amount		Amount	Less: ending inventory	Amount
	Amount		Amount
Total	Amount	Total	Amount	Cost of Goods Sold	Amount

 

Proof of Cost of Goods Sold (FIFO)
Date	Units	Unit Cost	Total Cost
	Amount		Amount
	Amount		Amount
	Amount		Amount
	Amount		Amount
Total	Amount	Total	Amount

 

LIFO

 

(1) Ending Inventory				(2) Cost of Goods Sold
Date	Units	Unit Cost	Total Cost	Cost of goods available for sale	Amount
	Amount		Amount	Less: ending inventory	Amount
	Amount		Amount
Total	Amount	Total	Amount	Cost of Goods Sold	Amount

 

Proof of Cost of Goods Sold (LIFO)
Date	Units	Unit Cost	Total Cost
	Amount		Amount
	Amount		Amount
	Amount		Amount
	Amount		Amount
Total	Amount	Total	Amount

 

AVERAGE COST (Round to the nearest decimal, i.e., $1.01)

 

(1) Ending Inventory				(2) Cost of Goods Sold
	Units	Unit Cost	Total Cost	Cost of goods available for sale	Amount
	Amount		Amount	Less: ending inventory	Amount
Total	Amount	Total	Amount	Cost of Goods Sold	Amount

 

 

 

 

(c) Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?

 

Enter your answer here

 

P6-2B 

Lifetime Distribution markets classic children’s books. At the beginning of June, Lifetime had in beginning inventory 1,200 books with a unit cost of $3. During June, Life- time made the following purchases of books.

June     3          4,000 @ $3                 June 29            4,000 @ $6

June 18            7,500 @ $5

During June, 10,500 books were sold. Lifetime uses a periodic inventory system.

Instructions

(a)  Determine the cost of goods available for sale.

(b)  Determine (1) the ending inventory and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods. (Note: For average-cost, round cost per unit to three decimal places.)

(c)  Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?

 

Problem 6-3B

 

(a) Determine the Cost of Goods Available for Sale

 

Date	Explanation	Units	Unit Cost	Total Cost
	Total

 

(b) Determine the ending inventory and the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO and average-cost).  Prove the accuracy of the cost of goods sold under each method.

 

FIFO

 

(1) Ending Inventory				(2) Cost of Goods Sold
Date	Units	Unit Cost	Total Cost	Cost of goods available for sale	Amount
	Amount		Amount	Less: ending inventory	Amount
	Amount		Amount
Total	Amount	Total	Amount	Cost of Goods Sold	Amount

 

Proof of Cost of Goods Sold (FIFO)
Date	Units	Unit Cost	Total Cost
	Amount		Amount
	Amount		Amount
	Amount		Amount
	Amount		Amount
Total	Amount	Total	Amount

 

LIFO

 

(1) Ending Inventory				(2) Cost of Goods Sold
Date	Units	Unit Cost	Total Cost	Cost of goods available for sale	Amount
	Amount		Amount	Less: ending inventory	Amount
	Amount		Amount
Total	Amount	Total	Amount	Cost of Goods Sold	Amount

 

Proof of Cost of Goods Sold (LIFO)
Date	Units	Unit Cost	Total Cost
	Amount		Amount
	Amount		Amount
	Amount		Amount
	Amount		Amount
Total	Amount	Total	Amount

 

AVERAGE COST (Round to the nearest decimal, i.e., $1.01)

 

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(1) Ending Inventory				(2) Cost of Goods Sold