Question

6. The information below is taken from the December 31, 2016 adjusted trial balance of Brittany Company:

Inventory, 1/1/16	$140,000
Sales	700,000
Selling expenses	25,000
General and administrative expenses	50,000
Interest expense	15,000
Purchases	330,000
Purchases returns	5,000
Sales discounts	10,000
Freight-in	7,500
Loss on sale of a major component of the business (pretax)	15,000

The inventory on December 31, 2016 was $165,000. The income tax rate is 30%. There were 25,000 shares of on stock outstanding throughout the year.

Required:

• Prepare a schedule of the cost of goods sold.
• Prepare a 2016 income statement for Brittany Company, using a multiple-step format (disregard earnings per share).
• Prepare a 2016 income statement for Brittany Company, using a single-step format (disregard earnings per share).

ANSWER:

Answer 1

Schedule of Cost of Goods Sold :
Particulars	Amount
Beginning Finished Goods	$   140,000
Purchases	$   330,000
Freight-in	$        7,500
Less : Purchase returns	$      (5,000)
Less : Closing Finished Goods	$ (165,000)
Cost of Goods Sold	$   307,500

Income statement for Brittany Company, using a multiple-step format
Particulars	Amount
Sales Revenue	$ 700,000
Less : Sales Discounts	$ (10,000)
Net Sales Revenue		$   690,000
Cost of Goods Sold		$ (307,500)
Gross Profit		$   382,500
Operating Expenses:
Selling Expenses	$    25,000
Administrative Expenses	$    50,000
Total Operating Expenses		$      75,000
Operating Income		$   307,500
Other Revenues and (Expenses):
Interest Expense	$ (15,000)
Loss on sale of a major component of the business	$ (15,000)
Total Other Revenues and (Expenses)		$   (30,000)
Net Income before tax		$   277,500
Tax Expense		$      83,250
Net Profit		$   194,250

Income statement for Brittany Company, using a single-step format
Particulars	Amount
REVENUES :
Sales Revenue	$ 700,000
Less : Sales Discounts	$ (10,000)
Total Revenues		$   690,000
EXPENSES :
Cost of Goods Sold	$ 307,500
Selling Expenses	$    25,000
Administrative Expenses	$    50,000
Interest Expense	$    15,000
Loss on sale of a major component of the business (pretax)	$    15,000
Total Expenses		$   412,500
Net Income before tax		$   277,500
Tax Expense		$      83,250
Net Profit		$   194,250