Question

Valley Company’s adjusted trial balance on August 31, its fiscal year-end, follows. It categorizes the following accounts as selling expenses: sales salaries expense, rent expense—selling space, store supplies expense, and advertising expense. It categorizes the remaining expenses as general and administrative.

		Debit			Credit
Merchandise inventory (ending)		$	30,500
Other (noninventory) assets			122,000
Total liabilities					$	35,228
Common stock						41,056
Retained earnings						62,091
Dividends			8,000
Sales						208,620
Sales discounts			3,192
Sales returns and allowances			13,769
Cost of goods sold			81,497
Sales salaries expense			28,581
Rent expense—Selling space			9,805
Store supplies expense			2,503
Advertising expense			17,733
Office salaries expense			26,078
Rent expense—Office space			2,503
Office supplies expense			834
Totals		$	346,995		$	346,995

Beginning merchandise inventory was $24,614. Supplementary records of merchandising activities for the year ended August 31 reveal the following itemized costs.

Invoice cost of merchandise purchases	$	89,670
Purchases discounts received		1,883
Purchases returns and allowances		4,304
Costs of transportation-in		3,900

  
Required:

1. Compute the company’s net sales for the year.
2. Compute the company’s total cost of merchandise purchased for the year.
3. Prepare a multiple-step income statement that includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.
4. Prepare a single-step income statement that includes these expense categories: cost of goods sold, selling expenses, and general and administrative expenses.

Answer 1

SOLUTION

1. Net sales = Total sales - Sales discount - Sales return

= $208,620 - 3,192 - 13,769

= 191,659

2. Cost of merchandise purchased = Invoice cost - Discount received - Purchase return + Cost of transportation

= 89,670 - 1,883 - 4,304 + 3,900

= 87,383

3. Multiple-step income statement -

Particulars	Amount ($)	Amount ($)
Sales	208,620
Sales discount	3,192
Sales return	13,769
Net sales		191,659
Cost of goods sold		81,497
Gross profit		110,162
Selling expenses:
Sales salary expense	28,581
Rent of selling space	9,805
Store supplies	2,503
Advertising expense	17,733
Total selling expenses		58,622
General and Administrative expenses:
Office salary	26,078
Rent expense	2,503
Office supplies	834
Total general and administrative expenses		29,415
Net profit		22,125

4. Single-step income statement-

Particulars	Amount ($)
Net sales	191,659
Cost of goods sold	81,497
Gross profit	110,162
Selling expenses	58,622
General and administrative expenses	29,415
Net profit	22,125