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Departmental Income Statement Perkins Appliance & Furniture Company has two departments, appliances and furniture. Operating information...

Departmental Income Statement
Perkins Appliance & Furniture Company has two departments, appliances and furniture. Operating information for 2016 appears below.

Alliance Department Furniture Department
Inventory, January 1, 2016 $146,000 $116,000
Inventory, December 31, 2016 49,600 22,000
Net sales 1,120,000 760,000
Purchases 640,000 480,000
Purchases discounts 8,000 6,000
Transporation in 18,000 16,000
Traceable departmental expenses 179,600 62,000

Common operating expenses of the firm were $180,000.

a. Prepare a departmental income statement showing departmental contribution to common expenses and net income of the firm. Assume an overall effective income tax rate of 40%. Perkins uses a periodic inventory system.

Do not use negative signs with any of your answers below.

Perkins Appliance & Furniture Company
Departmental Income Statement
For the Year Ended December 31, 2016
Appliance Department Furniture Department Total
Net sales $Answer $Answer $Answer
Cost of goods sold:
Inventory, January 1, 2016 Answer Answer Answer
Purchases Answer Answer Answer
Purchases discounts Answer Answer Answer
Transportation in Answer Answer Answer
Cost of goods available for sale Answer Answer Answer
Inventory, December 31, 2016 Answer Answer Answer
Cost of goods sold Answer Answer Answer
Gross Profit Answer Answer Answer
Traceable department expenses Answer Answer Answer
Contribution to common expenses Answer Answer Answer
Common expenses Answer
Income before tax Answer
Income tax expense Answer
Net income $Answer

b. Calculate the gross profit percentage for each department.

Round to the nearest whole percentage.

Appliance department

Answer

%

Furniture department

Answer

%

c. If the common expenses were allocated 70% to the appliance department and 30% to the furniture department, what would the net income be for each department?

Do not use negative signs with any of your answers below.

Appliance Department Furniture Department Total
Contribution to common expenses $Answer $Answer $Answer
Common expenses Answer Answer Answer
Income before tax Answer Answer Answer
Income tax expense Answer Answer Answer
Net income $Answer $Answer $Answer

Solutions

Expert Solution

Solution a:

Perkins Appliances and Furniture Company
Departmental Income statement
For the year ended December 31, 2016
Particulars Appliance deparment Furniture department Total
Net Sales $1,120,000.00 $760,000.00 $1,880,000.00
Cost of goods sold:
Inventory, Jan1, 2016 $146,000.00 $116,000.00 $262,000.00
Purchases $640,000.00 $480,000.00 $1,120,000.00
Purchase discounts -$8,000.00 -$6,000.00 -$14,000.00
Transporation In $18,000.00 $16,000.00 $34,000.00
Cost of goods available for sale $796,000.00 $606,000.00 $1,402,000.00
Inventory, Dec 31, 2016 -$49,600.00 -$22,000.00 -$71,600.00
Cost of goods sold $746,400.00 $584,000.00 $1,330,400.00
Gross Profit $373,600.00 $176,000.00 $549,600.00
Traceble department expenses $179,600.00 $62,000.00 $241,600.00
Contribution to common expenses $194,000.00 $114,000.00 $308,000.00
common expenses $180,000.00
Income before tax $128,000.00
Income tax expense (40%) $51,200.00
Net Income $76,800.00

Solution b:

Gross profit percentage = Gross profit / Net Sales

Appliance department = $373,600 / $1,120,000 = 33%

Furniture department = $176,000 / $760,000 = 23%

Solution c:

Perkins Appliances and Furniture Company
Departmental Income statement
For the year ended December 31, 2016
Particulars Appliance deparment Furniture department Total
Contribution to common expenses $194,000.00 $114,000.00 $308,000.00
common expenses $126,000.00 $54,000.00 $180,000.00
Income before tax $68,000.00 $60,000.00 $128,000.00
Income tax expense (40%) $27,200.00 $24,000.00 $51,200.00
Net Income $40,800.00 $36,000.00 $76,800.00

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