Question

Departmental Income Statement
Elgin Flooring Company sells floor coverings through two departments, carpeting and hard covering (tile and linoleum). Operating information for 2016 appears below.

				Carpeting Department	Hard Covering Department
Inventory, January 1, 2016				$71,000	$37,000
Inventory, December 31, 2016				39,000	19,000
Net sales				780,000	480,000
Purchases				484,000	362,000
Purchases returns				28,000	8,000
Purchases discounts				16,000	4,000
Transporation in				18,000	14,000
Traceable departmental expenses				96,000	44,000

Common operating expenses of the firm were $120,000.

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 35%. Elgin uses a periodic inventory system.

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

Elgin Flooring Company Departmental Income Statement For the Year Ended December 31, 2016
				Carpeting Department	Hard Covering Department	Total
Net sales				Answer	Answer	Answer
Cost of goods sold:
Inventory, January 1, 2016				Answer	Answer	Answer
Purchases				Answer	Answer	Answer
Purchases returns				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.

Carpeting department

Answer%

Hard Covering department

Answer%

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

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

				Carpeting Department	Hard Covering 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

Answer 1

Elgin Flooring Company
Departmental Income Statement
For the Year Ended December 31, 2016
	Carpeting Department	Hard Covering Department	Total
Net sales	780,000	480,000	1,260,000
Cost of goods sold:
Inventory, January 1, 2016	71,000	37,000	108,000
Add: Purchases	484,000	362,000	846,000
Less: Purchases returns	28,000	8,000	36,000
Less: Purchases discounts	16,000	4,000	20,000
Add: Transportation in	18,000	14,000	32,000
Cost of goods available for sale	529,000	401,000	930,000
Inventory, December 31, 2016	39,000	19,000	58,000
Cost of goods sold	490,000	382,000	872,000
Gross Profit	290,000	98,000	388,000
Traceable department expenses	96,000	44,000	140,000
Contribution to common expenses	194,000	54,000	248,000
Common expenses			120,000
Income before tax			128,000
Income tax expense			44,800
Net income			83,200
b.Gross Profit % = Gross Profit/Net Sales	37%	20%
	Carpeting Department	Hard Covering Department	Total
Contribution to common expenses	194,000	54,000	248,000
Common expenses	84,000	36,000	120,000
Income before tax	110,000	18,000	128,000
Income tax expense	38,500	6,300	44,800
Net income	71,500	11,700	83,200