Question

Brief Exercise 4-4 (Algo) Multiple-step income statement [LO4-1, 4-3]

The following is a partial year-end adjusted trial balance.

Account Title	Debits				Credits
Sales revenue					$	460,000
Loss on sale of investments	$	54,000
Interest revenue						6,500
Cost of goods sold		240,000
General and administrative expense		56,000
Restructuring costs		58,000
Selling expense		33,000
Income tax expense		?

Income tax expense has not yet been recorded. The income tax rate is 25%.

a. Determine the operating income (loss).
b. Determine the income (loss) before income taxes.
c. Determine the net income (loss).

Universal Calendar Company began the year with accounts receivable (net) and inventory balances of $270,000 and $50,000, respectively. Year-end balances for these accounts were $290,000 and $30,000, respectively. Sales for the year of $700,000 generated a gross profit of $220,000.

Calculate the receivables and inventory turnover ratios for the year.
  

Answer 1

1.

Net sales revenue		$   460,000
cost of goods sold		$   240,000
gross profit		$   220,000
Operating expenses
General and administrative expenses	$   56,000
Restructuring cost	$   58,000
Selling expense	$   33,000
Total operating expenses		$   147,000
Operating income		$      73,000
Non-Operating items
Interest revenue	$      6,500
Loss on sale of investment	$ (54,000)
Total non operating items		$   (47,500)
Income before income taxes		$      25,500
Income tax expenses ($25,500*25%)		$        6,375
Net income		$      19,125

2.

Inventory turnover ratio = cost of goods sold / Average inventory

Inventory turnover ratio = ($700,000-$220,000) / (($50,000+$30,000)/2)

Inventory turnover ratio = 12

Accounts receivable turnover ratio = Net credit sales / Average accounts recievable

Accounts receivable turnover ratio = $700,000 / (($270,000+290,000)/2)

Accounts receivable turnover ratio = 2.5

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