Question

A partial income statement for a company's most recent fiscal year follows:

Sales	$800,000
Inventory, January 1	$420,000
Add purchases	(a) ___
Goods available for sale	(b)
Inventory, December 31	470,000
Cost of goods sold	(c)
Gross margin	250,000
Deduct expenses:
Selling	(d)
Administrative	(e)
Income before taxes	(f)
Income taxes	(g)
Net income	(h)
Earnings per share (5,000 shares outstanding)	$4.20

Additional data:
Selling expenses are 20 percent of sales, administrative expenses are 10 percent of cost of goods sold; the income tax rate is 40 percent.

Required:

Supply dollar amounts for blanks a through h. Computations may not be in the order presented.

1. ____________

2. ____________

3. ____________

4. ____________

5. ____________

6. ____________

7. ____________

8. ____________

Answer 1

Gross margin = Sales - Cost of goods sold
$250,000 = $800,000 - Cost of goods sold
Cost of goods sold = $550,000

Cost of goods sold = Goods available for sale - Inventory, December 31
$550,000 = Goods available for sale - $470,000
Goods available for sale = $1,020,000

Goods available for sale = Inventory, January 1 + Purchases
$1,020,000 = $420,000 + Purchases
Purchases = $600,000

Selling expense = 20% * Sales
Selling expense = 20% * $800,000
Selling expense = $160,000

Administrative expense = 10% * Cost of goods sold
Administrative expense = 10% * $550,000
Administrative expense = $55,000