Question

The following calendar year-end information is taken from the December 31, 2017, adjusted trial balance and other records of Leone Company.

Advertising expense	$	28,750		Direct labor	$	675,480
Depreciation expense—Office equipment		7,250		Income taxes expense		233,725
Depreciation expense—Selling equipment		8,600		Indirect labor		56,875
Depreciation expense—Factory equipment		33,550		Miscellaneous production costs		8,425
Factory supervision		102,600		Office salaries expense		63,000
Factory supplies used		7,350		Raw materials purchases		925,000
Factory utilities		33,000		Rent expense—Office space		22,000
Inventories				Rent expense—Selling space		26,100
Raw materials, December 31, 2016		166,850		Rent expense—Factory building		76,800
Raw materials, December 31, 2017		182,000		Maintenance expense—Factory equipment		35,400
Work in process, December 31, 2016		15,700		Sales		4,462,500
Work in process, December 31, 2017		19,380		Sales salaries expense		392,560
Finished goods, December 31, 2016		167,350
Finished goods, December 31, 2017		136,490

Prepare the company’s 2017 income statement that reports separate categories for (a) selling expenses and (b) general and administrative expenses.

LEONE COMPANYIncome StatementFor Year Ended December 31, 2017Cost of goods soldGoods available for saleCost of goods soldOperating expensesSelling expensesTotal selling expensesGeneral and administrative expensesTotal general and administrative expensesTotal operating expensesIncome before taxesNet income

Answer 1

Solution:

Leone company
Schedule of cost of goods manufactured
For the year ended December 31, 2017
Direct Materials:
Raw Materials inventory, December 31, 2016	$1,66,850
Add: Purchases of Raw Materials	$9,25,000
Cost of material available for use	$10,91,850
Less: Raw Material Inventory, December 31, 2017	$1,82,000
Raw material used in production		$9,09,850
Direct Labor cost		$6,75,480
Factory Overhead:
Depreciation Expense-Factory Equipment	$33,550
Factory Supervision	$1,02,600
Factory Supplies used	$7,350
Factory Utilities	$33,000
Indirect Labor	$56,875
Miscellaneous production cost	$8,425
Rent expense- Factory Building	$76,800
Maintenance expense-Factory Equipment	$35,400
Total Factory Overhead		$3,54,000
Total Manufacturing Costs Incurred in 2017		$19,39,330
Add: Work in Process, December 31, 2016		$15,700
Subtotal		$19,55,030
Less: Work in process inventory, December 31, 2017		$19,380
Cost of goods manufactured		$19,35,650

Leone company
Income Statement
For the year ended December 31, 2017
Sales		$44,62,500
Cost of Goods sold:
Finished Goods, December 31, 2016	$1,67,350
Add: Cost of Goods manufactured	$19,35,650
Cost of Goods available for sale	$21,03,000
Less: Finished Goods, Decemebr 31, 2017	$1,36,490	$19,66,510
Gross Profit		$24,95,990
Operating Expenses:
Administrative expenses:
Depreciation Expense- Office Equipment	$7,250
Office Salaries expense	$63,000
Rent expense- Office space	$22,000	$92,250
Selling Expenses:
Advertising Expense	$28,750
Depreciation Expense- Selling Equipment	$8,600
Sales Salaries expenses	$3,92,560
Rent expense- Selling space	$26,100	$4,56,010
Total Operating Expenses		$5,48,260
Income Before Income Tax		$19,47,730
Less: Income Tax expense		$2,33,725
Net Income		$17,14,005