Question

Problem 5-3A Computing merchandising amounts and formatting income statements LO C2, P4

Valley Company’s adjusted trial balance on August 31, 2017, its fiscal year-end, follows.

		Debit			Credit
Merchandise inventory		$	38,000
Other (noninventory) assets			152,000
Total liabilities					$	43,890
K. Valley, Capital						125,585
K. Valley, Withdrawals			8,000
Sales						259,920
Sales discounts			3,977
Sales returns and allowances			17,155
Cost of goods sold			100,577
Sales salaries expense			35,609
Rent expense—Selling space			12,216
Store supplies expense			3,119
Advertising expense			22,093
Office salaries expense			32,490
Rent expense—Office space			3,119
Office supplies expense			1,040
Totals		$	429,395		$	429,395

On August 31, 2016, merchandise inventory was $30,666. Supplementary records of merchandising activities for the year ended August 31, 2017, reveal the following itemized costs.

Invoice cost of merchandise purchases	$	111,720
Purchases discounts received		2,346
Purchases returns and allowances		5,363
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

1
Net sales	$238,788
2
cost of merchandise purchased
111,720-2,346-5,363+3,900	107911

3

VALLEY COMPANY
multiple-step Income Statement
For Year Ended August 31, 2017
Sales		$259,920
Less: Sales discounts	$3,977
Less: Sales returns and allowances	17,155	21132
Net sales		$238,788
Cost of goods sold		100,577
Gross profit		$138,211
Expense
Selling expenses
Sales salaries expense	35,609
Rent expense—Selling space	12,216
Store supplies expense	3,119
Advertising expense	22,093
Total selling expenses		73037
General and administrative expenses
Office salaries expense	32,490
Rent expense—Office space	3,119
Office supplies expense	1,040
Total general and administrative expenses		36649
Total expenses		109686
Net income		$28,525

4

VALLEY COMPANY
single-step Income Statement
For Year Ended August 31, 2017
Net sales		$238,788
Expenses
Cost of goods sold	$100,577
Selling expenses	73,037
General and administrative expenses	36,649
Total expenses		210263
Net income		$28,525