Question

Departmental Income Statement Elgin Flooring Company sells floor coverings through two de-

partments, carpeting and hard covering (tile and linoleum). Operating information for 2019 appears

below

Carpeting

Department

Hard Covering

Department

Inventory, January 1, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,000 $ 26,000

Inventory, December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 30,000

Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 800,000

Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 560,000

Purchases returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000 8,000

Purchases discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 4,000

Transportation in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000 14,000

Traceable departmental expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,000 56,000

Common operating expenses of the firm were $225,000.

Required

a. Prepare a departmental income statement showing departmental contribution to common ex-

penses and net income of the firm. Assume an overall effective income tax rate of 20%. Elgin

uses a periodic inventory system.

b. Calculate the gross profit percentage for each department.

c. If the common expenses were allocated 40% to the carpeting department and 60% to the hard

covering department, what would the net income be for each department?

Answer 1

Departmental Income Statement
For the Year Ended December 31, 2019
	Carpeting Department	Hard Covering Department	Total
Particular	Amount	Amount	Amount
Net sales (a)	$500,000	$800,000	$1,300,000
Cost of goods sold:			$0
Inventory, January 1, 2019	$60,000	$26,000	$86,000
Purchases	$300,000	$560,000	$860,000
Purchases returns	-$28,000	-$8,000	-$36,000
Purchases discounts	-$16,000	-$4,000	-$20,000
Transportation in	$18,000	$14,000	$32,000
Cost of goods available for sale	$334,000	$588,000	$922,000
Inventory, December 31, 2019	-$50,000	-$30,000	-$80,000
Cost of goods sold (b)	$284,000	$558,000	$842,000
Gross Profit (a-b)	$216,000	$242,000	$458,000
Less: Traceable department expenses	$108,000	$56,000	$164,000
Contribution to common expenses	$108,000	$186,000	$294,000
Common expenses			-$225,000
Income before tax			$69,000
Less: Income tax expense @20%			-$13,800
Net income			$55,200

Computation of GP Ratio
Net sales (a)	$500,000	$800,000
Gross Profit (b)	$216,000	$242,000
Gross Profit Percentage (b/a)	43%	30%

Part-3
	Carpeting Department	Hard Covering Department	Total
Contribution to common expenses	$108,000	$186,000	$294,000
Common expenses	-90000	-135000	-225000
	(225000*40%)	(225000*60%)
Income before tax	$18,000	$51,000	$69,000
Income tax expense @ 20%	-$3,600	-$10,200	-$13,800
Net income	$14,400	$40,800	$55,200