Question

ncome Statement Calculations

O'Connor Company's income statement information for 2019 and 2020 (a sole proprietorship) is as follows:

	2019		2020
Beginning inventory	$ (a)		$ (d)
Sales	206,000		(e)
Purchases	130,000		140,000
Purchases returns and allowances	7,000		6,000
Ending inventory	62,000		(f)
Gross profit	(b)		100,000
Cost of goods sold	114,000		120,000
Selling expenses	35,000		36,000
Transportation-in	2,000		5,000
General and administrative expenses	20,000		(g)
Net income	(c)		43,000

Required:

Compute the missing amounts labeled (a) through (g). All the necessary information is listed. (Hint: It is not necessary to calculate your answers in alphabetical order.)

Answer 1

For 2019

b.

Gross profit = Sales - Cost of goods sold

= 206,000-114,000

= $92,000

a.

Cost of goods sold = Beginning inventory+Purchases-Purchases returns and allowances+Transportation-in- Ending inventory

114,000= Beginning inventory + 130,000-7,000+2,000-62,000

Beginning inventory = $51,000

c.

Net income = Gross profit - Selling expenses- General and administrative expenses

= 92,000-35,000-20,000

= $37,000

For 2020

g.

Net income = Gross profit - Selling expenses- General and administrative expenses

43,000 = 100,000-36,000-General and administrative expenses

General and administrative expenses = $21,000

d.

Beginning inventory of 2020 = Ending inventory of 2019

= $62,000

e.

Gross profit = Sales - Cost of goods sold

100,000 = Sales - 120,000

Sales = $220,000

f.

Cost of goods sold = Beginning inventory+Purchases-Purchases returns and allowances+Transportation-in- Ending inventory

120,000 = 62,000+140,000-6,000+5,000-Ending inventory

120,000 = 201,000- Ending inventory

Ending inventory = $81,000