Question

Sheffield Company is a manufacturer of smart phones. Its controller resigned in October 2020. An inexperienced assistant accountant has prepared the following income statement for the month of October 2020. SHEFFIELD COMPANY Income Statement For the Month Ended October 31, 2020 Sales revenue $794,100 Less: Operating expenses Raw materials purchases $264,900 Direct labor cost 190,100 Advertising expense 92,500 Selling and administrative salaries 76,100 Rent on factory facilities 62,600 Depreciation on sales equipment 44,000 Depreciation on factory equipment 32,600 Indirect labor cost 29,700 Utilities expense 12,600 Insurance expense 8,800 813,900 Net loss $(19,800) Prior to October 2020, the company had been profitable every month. The company’s president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired additional information as follows. 1. Inventory balances at the beginning and end of October were: October 1 October 31 Raw materials $20,200 $35,300 Work in process 19,000 14,900 Finished goods 29,200 53,700 2. Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Prepare a schedule of cost of goods manufactured for October 2020. SHEFFIELD COMPANY Cost of Goods Manufactured Schedule October 31, 2020 For the Month Ended October 31, 2020 For the Year Ended October 31, 2020 $ $ $ $

Prepare a correct income statement for October 2020. SHEFFIELD COMPANY Income Statement October 31, 2020 For the Month Ended October 31, 2020 For the Year Ended October 31, 2020 $ $ $

Answer 1