Question

Fill in the blanks in the following separate income statements a through e (Amounts to be deducted should be indicated by a minus sign.) 

Sydney accepts delivery of $22,000 of merchandise it purchases for resale from Troy: invoice dated May 11, terms 3/10, n/90, FOB shipping point. The goods cost Troy $14,740. 

Answer 1

Introduction- First the separate invome statement will be prepared and then the journal entry part will be done. Calculations and formulas are given for complete understanding.

Solution.

Step 1: We will prepare separate income statement.

Using the formulas:

1) Cost of Goods Sold = Opening Inventory + Purchases made - Closing inventory

2) Gross Profit = Sales - Cost of Goods Sold

3) Net Income = Gross Profit - Expenses

Using the above Equation we can complete the table given in question.

Now let us prepare a table

	a	b	c	d	e
Sales	$72,000	$ 44,500	$ 36,000	$ 85,600 ( refer WN 6 below)	$ 25,200
Merchandise Inventory ( begining)	7,500	16,960	6100	7,000	4,470
Total Cost of Merchandise Purchases	58,000	2140 ( refer WN2 below)	32,700 ( refer WN 4 below)	37,000	6,800
Merchandise Inventory ( ending)	32,110 ( refer WN-1 below)	(2,100)	(8,700)	(6,000)	3,470 ( refer WN 7 below)
Cost of Goods Sold	33,900	17,000	30,100 ( refer WN-3 below)	38,000 ( refer WN 5 below)	7,800
Gross Profit	38,100 ( Sales - Cost of goods sold)	27,500 ( Sales - Cost of goods sold)	5900	47,600	17,400 ( Sales - Cost of goods sold)
Expenses	22,000	11,530	10,070	5,100	6,600
Net Income ( loss)	16,100 ( Gross Profit - Expenses)	$ 15,970	$ (4,170)	$ 42,500	$ 10,800 ( Gross Profit - Expenses)

* WN denotes Working Note.

WN - 1 -

Cost of Goods Sold = Opening Inventory + Purchases - Closing Inventory

33,390 = 7,500 + 58,000 - Closing Inventory

Closing Inventory = 7500 + 58,000 - 33,390

Closing Inventory = 32,110

WN - 2

cost of goods sold = opening inventory + purchases - closing inventory

17,000 = 16,960 + purchases - 2100

Purchases = 17,000 - 16960 +2100

Purchases = 2140

WN 3 -

Sales - Cost of Goods sold = Gross Profit

36,000 - Cost of goods sold = 5900

Cost of goods sold = 36,000 - 5900

Cost of goods sold = 30,100

WN - 4 -

cost of goods sold = opening inventory + purchases - closing inventory

30,100 = 6100 + purchases - 8700

purchases = 30100 - 6100 + 8700

purchases = 32,700

WN - 5 -

cost of goods sold = opening inventory + purchases - closing inventory

cost of goods sold = 7000 + 37,000 - 6000

cost of goods sold = 38,000

WN 6 -

Sales - cost of goods sold = Gross Profit

sales - 38,000 = 47,600

sales = 47,600 + 38,000

sales = 85,600

WN 7-

cost of goods sold = opening inventory + purchases - closing inventory

7800 = 4470 + 6800 - closing inventory

closing inventory = 4470 + 6800 - 7800

closing inventory = 3470

Step 2

Now we will do next part in the question. We will record the following journal entry.

Journal Entry

in the books of Troy

Date	General Journal	Debit	Credit
May 11	Accounts Receivables : Sydney A/c Dr.	$ 22,000
	To Sales A/c		$ 22,000
	Cost of Goods Sold A/c Dr.	$ 14,740
	To Merchandise Inventory		$ 14,740