Question

Glades Sporting Goods Co. operates two divisions—the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trial balance as of December 31, 20Y8, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales—Winter Sports Division	$10,525,000
Sales—Summer Sports Division	13,610,000
Cost of Goods Sold—Winter Sports Division	6,280,000
Cost of Goods Sold—Summer Sports Division	7,868,000
Sales expense—Winter Sports Division	1,650,000
Sales expense—Summer Sports Division	1,894,000
Administrative Expense—Winter Sports Division	1,002,000
Administrative Expense—Summer Sports Division	1,204,400
Advertising Expense	479,000
Transportation Expense	144,500
Accounts Receivable Collection Expense	120,400
Warehouse Expense	1,164,000

The bases to be used in allocating expenses, together with other essential information, are as follows:

A.	Advertising expense—incurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, $216,300; Summer Sports Division, $262,700.
B.	Transportation expense—charged back to divisions at a charge rate of $5 per bill of lading: Winter Sports Division, 13,400 bills of lading; Summer Sports Division, 15,500 bills of lading.
C.	Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $5 per invoice: Winter Sports Division, 9,650 sales invoices; Summer Sports Division, 14,430 sales invoices.
D.	Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 91,000 square feet; Summer Sports Division, 103,000 square feet.

	Required:
1.	Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Refer to the list of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. “Less” or “Plus” and colons will automatically appear if it is required. Be sure to complete the statement heading. (You may find it useful to work the Supporting Calculations first.)
2.	Provide supporting calculations for service department charges.

Answer 1

Glades Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y8
	Winter Sports Division	Summer Sports Division
Sales	10525000	13610000
Cost of goods sold	6280000	7868000
Gross profit	4245000	5742000
Divisional selling and administrative expenses:
Divisional selling expenses	1650000	1894000
Divisional administrative expenses	1002000	1204400
Total divisional selling and administrative expenses	2652000	3098400
Income from operations before service department charges	1593000	2643600
Service department charges:
Advertising expense	216300	262700
Transportation expense	67000	77500
Accounts receivable collection expense	48250	72150
Warehouse expense	546000	618000
Total service department charges	877550	1030350
Income from operations	715450	1613250
2
Glades Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y8
	Winter Sports Division	Summer Sports Division	Total
Advertising expense	216300	262700	479000
Transportation rate per bill of lading	5	5
Number of bills of lading	13400	15500
Transportation expense	67000	77500	144500
Accounts receivable collection rate	5	5
Number of sales invoices	9650	14430
Accounts receivable collection expense	48250	72150	120400
Warehouse rate per sq. ft.	6	6
Number of square feet	91000	103000
Warehouse expense	546000	618000	1164000