Question

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

  

			Debit			Credit
Merchandise inventory		$	41,000
Other (noninventory) assets			130,400
Total liabilities					$	25,000
Common stock						10,000
Retained earnings						94,550
Dividends			8,000
Sales						225,600
Sales discounts			2,250
Sales returns and allowances			12,000
Cost of goods sold			74,500
Sales salaries expense			32,000
Rent expense—Selling space			8,000
Store supplies expense			1,500
Advertising expense			13,000
Office salaries expense			28,500
Rent expense—Office space			3,600
Office supplies expense			400
Totals		$	355,150		$	355,150

  
On August 31, 2016, merchandise inventory was $25,400. Supplementary records of merchandising activities for the year ended August 31, 2017, reveal the following itemized costs.
  

Invoice cost of merchandise purchases	$	92,000
Purchases discounts received		2,000
Purchases returns and allowances		4,500
Costs of transportation-in		4,600

  
Required:

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.

Compute the company’s total cost of merchandise purchased for the year.

	Cost of merchandise purchased Invoice cost of merchandise purchased Purchase discounts received Purchase returns and allowances Costs of transportation-in Total cost of merchandise purchased

Prepare a multiple-step income statement that includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.

	VALLEY COMPANY Income Statement For Year Ended August 31, 2017 0 0 0 Expense Selling expenses Total selling expenses 0 General and administrative expenses Total general and administrative expenses 0 Total expenses 0

Prepare a single-step income statement that includes these expense categories: cost of goods sold, selling expenses, and general and administrative expenses.

	VALLEY COMPANY Income Statement For Year Ended August 31, 2017 Expenses Total expenses 0

Answer 1

Solution 2:

Cost of merchandise purchased
Particulars	Amount
Invoice cost of merchandise purchased	$92,000.00
Purchase discounts received	-$2,000.00
Purchase returns and allowances	-$4,500.00
Costs of transportation-in	$4,600.00
Total cost of merchandise purchased	$90,100.00

Solution 3:

VALLEY COMPANY
Income Statement
For Year Ended August 31, 2017
Particulars		Amount
Sales	$225,600.00
Less: Sales discounts	$2,250.00
Less: Sales return and allowances	$12,000.00
Net Sales		$211,350.00
Cost of goods sold		$74,500.00
Gross Profit		$136,850.00
Expenses:
Selling expenses:
Sales salaries expense	$32,000.00
Rent expense - Selling Space	$8,000.00
Adertising expense	$13,000.00
Total selling expenses		$53,000.00
General and administrative expenses:
store supplies expense	$1,500.00
Office salaries expense	$28,500.00
Rent expense - Office space	$3,600.00
Office supplies expense	$400.00
Total general and administrative expenses		$34,000.00
Total expenses		$87,000.00
Net Income		$49,850.00

Solution 4:

VALLEY COMPANY
Income Statement
For Year Ended August 31, 2017
Particulars		Amount
Net Sales		$211,350.00
Expenses:
Cost of goods sold	$74,500.00
Selling expenses	$53,000.00
General and administrative expenses	$34,000.00
Total expenses		$161,500.00
Net Income		$49,850.00