Question

Salaries expense	$125,000	Sales revenue	$580,000
Sales returns	5,000	Interest income	1,000
Utilities expense	15,000	Cost of goods sold	275,000
Income tax expense	10,000	Rent Expense	110,000
Cash	12,000	Interest expense	4,000
Inventory (begin)	8,000	Inventory (end)	12,000

Determine:

1. Net sales                                 $______

2. Gross profit                            $______

3. Operating expenses              $______

4. Operating income                 $______

5. Pretax income (IBT)              $______

6. Net income                             $______

7. Purchases                               $______

8. Gross profit ratio (two decimal places) __ __. __ __%

Use the following for 9 and 10

	Units	Cost per unit
Beginning inventory	200	$10.00
Purchase 1	500	$10.30
Purchase 2	300	$11.00

The company sold 920 units

9. Determine ending inventory using FIFO:   $_________

10. Determine ending inventory using LIFO:  $_________

Answer 1

Determining the Following:-

1. Calculations for Net Sales:-

Net Sales =(Sales Revenue - Sales Returns)

=($580,000-$5,000)

=$575,000

2. Calculations for Gross Profit:-

Gross Profit =(Net Sales - Cost of Goods Sold)

=($575,000-$275,000)

=$300,000

3. Calculations for Operating Expenses:-

Operating Expenses=(Salaries Expense+Utilities Expense+Rent Expense)

=($125,000+$15,000+$110,000)

=$250,000

4. Calculations for Operating Income:-

Operating Income=(Gross Profit - Operating Expenses)

=($300,000-$250,000)

=$50,000

5. Calculations for Pretax Income (IBT):-

Pretax Income=(Operating Income+ Interest Income - Interest Expense)

=($50,000+$1,000-$4,000)

=$47,000

6. Calculations for Net Income:-

Net Income =(Pretax Income - Income Tax Expense)

=($47,000-$10,000)

=$37,000

7. Calculations for Purchases:-

We know that,

Cost of Goods Sold =(Inventory begin+ Purchases - Inventory end)

So

Purchases =(Cost of Goods Sold - Inventory begin+ Inventory end)

=($275,000-$8,000+12,000)

=$279,000

8. Calculations for Gross Profit Ratio:-

Gross Profit Ratio=(Gross Profit/ Net Sales)×100

=($300,000/$575,000)×100

=52.17%

9. Calculations for Ending Inventory Using FIFO:-

Ending Inventory Using FIFO:-

	Units	Cost of Goods Sold	Ending Inventory
Beginning Inventory	200 units×$10=$2,000	200 units×$10=$2,000
Purchase 1	500 units × $10.30=$5,150	500 units ×$10.30=$5,150
Purchase 2	300 units ×$11=$3,300	220 units ×$11=$2,420	80 units ×$11=$880
Totals	1,000 units=$10,450	920 units=$9,570	80 units=$880

So the Ending Inventory Using FIFO method is $880.

10. Calculations for Ending Inventory Using LIFO:-

Ending Inventory Using LIFO:-

	Units	Cost of Goods Sold	Ending Inventory
Beginning Inventory	200 units×$10=$2,000	120 units ×$10=$1,200	80 units ×$10=$800
Purchase 1	500 units ×$10.30=$5,150	500 units ×$10.30=$5,150
Purchase 2	300 units ×$11=$3,300	300 units×$11=$3,300
Totals	1,000 units=$10,450	920 units=$9,650	80 units =$800

So the Ending Inventory Using LIFO method is $800.