Question

Valley Company’s adjusted trial balance on August 31, 2017, its fiscal year-end, follows. Debit Credit Merchandise inventory $ 42,000 Other (non inventory) assets 168,000 Total liabilities $ 48,510 Common stock 10,000 Retained earnings 127,550 Dividends 8,000 Sales 287,280 Sales discounts 4,395 Sales returns and allowances 18,960 Cost of goods sold 110,754 Sales salaries expense 39,357 Rent expense—Selling space 13,502 Store supplies expense 3,447 Advertising expense 24,419 Office salaries expense 35,910 Rent expense—Office space 3,447 Office supplies expense 1,149 Totals $ 473,340 $ 473,340 On August 31, 2016, merchandise inventory was $33,894. Supplementary records of merchandising activities for the year ended August 31, 2017, reveal the following itemized costs. Invoice cost of merchandise purchases $ 123,480 Purchases discounts received 2,593 Purchases returns and allowances 5,927 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.

Sales	$287,280
Less: Sales discounts	(4,395)
Less: Sales returns and allowances	(18,960)
Net sales	$263,925

2.

Invoice cost of merchandise inventory	$123,480
Less: Purchase discounts	(2,593)
Less: Purchase returns and allowances	(5,927)
Add: Cost of transportation in	3,900
Cost of merchandise purchased	$118,860

3.

VALLEY COMPANY Income Statement For The Year Ended August 31, 2017
Sales		$287,280
Less: Sales discounts	4,395
Less: Sales returns and allowances	18,960
		23,355
Net sales		263,925
Cost of goods sold		110,754
Gross profit		153,171
Selling expense:
Salaries expense	39,357
Rent expense-selling space	13,502
Store supplies expense	3,447
Advertising expense	24,419
Total selling expenses		80,725
General and administrative expenses:
Office salaries expense	35,910
Rent expense-office space	3,447
Office supplies expense	1,149
Total general and administrative expenses		40,506
Net income		$31940

4.

VALLEY COMPANY Income Statement For The Year Ended August 31, 2017
Revenues:
Net sales	$263,925
Total revenues	263,925
Expenses:
Cost of goods sold	110,754
Selling expenses	80,725
General and administrative expenses	40,506
Total expenses	231,985
Net income	$31,940