Question

The following account titles and balances were taken from the adjusted trial balance of Prince Co. for Year 2. The company uses the periodic inventory system.

Sales returns and allowances $11,700

Miscellaneous expense $6,300

Transportation-out $19,300

Sales $21,400

Advertising expense $930

Salaries expense $163,000

Transportation-in $3,350

Purchases $21,250

Interest expense $59,500

Merchandise inventory, January 1 $333,000

Rent expense $9,300

Merchandise inventory, December 31 $6,850

Purchase returns and allowances $11,450

Loss on sale of land $5,300

Utilities expense $12,500

a. Prepare a schedule to determine the amount of cost of goods sold.

b. Prepare a multistep income statement.
c. Prepare a single-step income statement.

Answer 1

ANSWER

KING CO
Schedule of Cost of Goods Sold
Merchandise inventory, January 1	$    333,000
Add:Purchases	$    21,250
Add: transportation in	$      3,350
Less: Purchase return and allowances	$    (11,450)
Cost of goods available for sale	$ 346,150
Less: Merchandise inventory, December 31	$ (6,850)
Cost of goods sold	$    339,300

2.

KING CO
Income Statement
FOR Year 2
Sales
Sales revenue	$ 21,400
Less: Sales return and allowances	$    (11,700)
Net sales		$ 9,700
Less: Cost of goods sold		$ 339,300
Gross profit		$    (329,600)
Operating expenses
Misc. expenses	$          6,300
Transportation-out	$      19,300
Advertising expenses	$      930
Salaries expense	$    163,000
Rent expense	$      9,300
Utilities expense	$      12,500
Total operating expenses		$    211,330
Income from operations		$ (118,270)
Non-operating items
Interest expense	$        (59,500)
Loss on sale of land	$    (5,300)
Total non-operating items		$    (64,800)
Net income		$ (183,070)

3.

KING CO
Income Statement
FOR Year 2
Sales
Sales revenue	$ 21,400
Less: Sales return and allowances	$    (11,700)
Net sales		$ 9,700
Operating expenses
Cost of goods sold	$    339,300
Misc. expenses	$          6,300
Transportation-out	$      19,300
Advertising expenses	$      930
Salaries expense	$    163,000
Rent expense	$      9,300
Utilities expense	$      12,500
Total expenses		$ 550,630
Non-operating items
Interest expense	$        (59,500)
Loss on sale of land	$    (5,300)
Total non-operating items		$    (64,800)
Net income		$    485,830

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