Question

Problem 4-3A Computing merchandising amounts and formatting income statements LO C2, P4

Valley Company’s adjusted trial balance on August 31, 2018, its fiscal year-end, follows.

		Debit			Credit
Merchandise inventory		$	30,500
Other (noninventory) assets			122,000
Total liabilities					$	35,228
Common stock						10,000
Retained earnings						93,147
Dividends			8,000
Sales						208,620
Sales discounts			3,192
Sales returns and allowances			13,769
Cost of goods sold			81,497
Sales salaries expense			28,581
Rent expense—Selling space			9,805
Store supplies expense			2,503
Advertising expense			17,733
Office salaries expense			26,078
Rent expense—Office space			2,503
Office supplies expense			834
Totals		$	346,995		$	346,995

On August 31, 2017, merchandise inventory was $24,614. Supplementary records of merchandising activities for the year ended August 31, 2018, reveal the following itemized costs.

Invoice cost of merchandise purchases	$	89,670
Purchases discounts received		1,883
Purchases returns and allowances		4,304
Costs of transportation-in		3,900

  
Required:

1. Compute the company’s net sales for the year.
2. Compute the company’s total cost of merchandise purchased for the year.
3. Prepare a multiple-step income statement that includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.
4. Prepare a single-step income statement that includes these expense categories: cost of goods sold, selling expenses, and general and administrative expenses.

Answer 1

a.Company's Net sales computation

Net Sales
Sales	$       2,08,620
Less : Sales discounts	$           -3,192
Less: Sales returns and allowances	$         -13,769
Net sales	$       1,91,659

b.Company’s total cost of merchandise purchased for the year.

The calculation of inventory purchases is:

(Ending inventory - Beginning inventory) + Cost of goods sold = Inventory purchases

Merchandise inventory, August 31, 2018	$        30,500
Merchandise inventory august 31,2017	$      -24,614
Cost of goods sold	$        81,497
Total inventory purchases for the year	$        87,383

c.Multiple step income statement -

Valley Company
(multiple Step) Income statement
For the year ended 31 august,2018
Sales		191659
Cost of goods sold		-81497
Gross profit		110162
Operating Expenses :
Selling expenses :		-58622
Sales salaries expense	28,581
Rent expense—Selling space	9,805
Store supplies expense	2,503
Advertising expense	17,733
Administrative expense :		-29415
Office salaries expense	26,078
Rent expense—Office space	2,503
Office supplies expense	834
Non operating income :	-	-
Net income		22125

Cost of goods sold
Merchandise inventory august 31,2017	$    24,614
Total cost of merchandise purchased	$    87,383
Merchandise inventory, August 31, 2018	$    30,500
Cost of goods sold	$    81,497

d.Single step income statement

Valley Company
(Single Step) Income statement
For the year ended 31 august,2018
Revenues and gains
Sales revenue	191659
Total revenue and gains	191659
Expenses and losses
Cost of goods sold	81497
Sales salaries expense	28,581
Rent expense—Selling space	9,805
Store supplies expense	2,503
Advertising expense	17,733
Office salaries expense	26,078
Rent expense—Office space	2,503
Office supplies expense	834
total expenses and losses	169534

Net income

22125