Question

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Problem 14-3A Schedule of cost of goods manufactured and income statement; inventory analysis LO P2, A1

[The following information applies to the questions displayed below.]
  

The following calendar year-end information is taken from the December 31, 2017, adjusted trial balance and other records of Leone Company.

Advertising expense	$	28,750		Direct labor	$	675,480
Depreciation expense—Office equipment		7,250		Income taxes expense		233,725
Depreciation expense—Selling equipment		8,600		Indirect labor		56,875
Depreciation expense—Factory equipment		33,550		Miscellaneous production costs		8,425
Factory supervision		102,600		Office salaries expense		63,000
Factory supplies used		7,350		Raw materials purchases		925,000
Factory utilities		33,000		Rent expense—Office space		22,000
Inventories				Rent expense—Selling space		26,100
Raw materials, December 31, 2016		166,850		Rent expense—Factory building		76,800
Raw materials, December 31, 2017		182,000		Maintenance expense—Factory equipment		35,400
Work in process, December 31, 2016		15,700		Sales		4,462,500
Work in process, December 31, 2017		19,380		Sales salaries expense		392,560
Finished goods, December 31, 2016		167,350
Finished goods, December 31, 2017		136,490

Problem 14-3A Part 2

2. Prepare the company’s 2017 income statement that reports separate categories for (a) selling expenses and (b) general and administrative expenses.
  

Answer 1

Income Statement

Particulars	Amount ($)	Amount ($)
Sales		4462500
Cost of Goods sold
Cost of Goods manufactured (Working Note)	1935650
Add: Finished goods, December 31, 2016	167350
Goods available for sale	2103000
Less: Finished goods, December 31, 2017	(136490)
Cost of Goods sold		1966510
Gross Profit (Sales - Cost of Goods sold)		2495990
Less: Operating expenses
SELLING EXPENSES
Advertising expense	28750
Depreciation expense - Selling equipment	8600
Rent expense - Selling space	26100
Sales salaries expense	392560
Total Selling expenses		456010
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation expense - Office equipment	7250
Office salaries expense	63000
Rent expense - Office space	22000
Total General and Administrative expenses		92250
Total Operating expenses (Total selling expense + Total general and administrative expense)		548260
Income before Tax (Gross profit - Total operating expenses)		1947730
Less: Income Tax expense		233725
NET INCOME		$1714005

Working Note
Computation of cost of goods manufactured

Particulars	Amount ($)
Direct materials used (Opening inventory + Purchases - closing inventory) ($166850 + $925000 - $182000)	909850
Direct Labor	675480
Factory overhead (Indirect labor + Factory supervision + Factory supplies+ Utilities + Maintenance + Depreciation- Factory equipment + Miscelleneous production costs + Rent- Factory Building) ($56875 + $102600+ $7350 + 33000 + $35400 + $33550 + $8425 + $76800)	354000
Total Manufacturing overhead	1939330
Add: Opening Work in process	15700
Less: Closing Work in process	(19380)
Cost of goods manufactured	$1935650

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