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)		$	43,500
Other (noninventory) assets			174,000
Total liabilities					$	50,243
Common stock						58,556
Retained earnings						83,482
Dividends			8,000
Sales						297,540
Sales discounts			4,552
Sales returns and allowances			19,638
Cost of goods sold			114,570
Sales salaries expense			40,763
Rent expense—Selling space			13,984
Store supplies expense			3,570
Advertising expense			25,291
Office salaries expense			37,193
Rent expense—Office space			3,570
Office supplies expense			1,190
Totals		$	489,821		$	489,821

Beginning merchandise inventory was $35,105. Supplementary records of merchandising activities for the year ended August 31 reveal the following itemized costs.

Invoice cost of merchandise purchases	$	127,890
Purchases discounts received		2,686
Purchases returns and allowances		6,139
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

1
Sales	297540
Less: Sales discounts	(4552)
Less: Sales returns and allowances	(19638)
Net sales	273350
2
Cost of Merchandise Purchased
Invoice cost of merchandise purchased	127890
Purchase discounts received	(2686)
Purchase returns and allowances	(6139)
Costs of transportation-in	3900
Total cost of merchandise purchased	122965
3
VALLEY COMPANY
Income Statement
For Year Ended August 31
Sales		297,540
Less: Sales discounts	4,552
Less: Sales returns and allowances	19,638	24190
Net sales		273,350
Cost of goods sold		114,570
Gross profit		158,780
Expense
Selling expenses
Sales salaries expense	40,763
Rent expense - Selling space	13,984
Store supplies expense	3,570
Advertising expense	25,291
Total selling expenses		83,608
General and administrative expenses
Office salaries expense	37,193
Rent expense - Office space	3,570
Office supplies expense	1190
Total general and administrative expenses		41,953
Total expenses		125,561
Net income		33,219
4
VALLEY COMPANY
Income Statement
For Year Ended August 31
Net sales		273,350
Expenses
Cost of goods sold	114,570
Selling expenses	83,608
General and administrative expenses	41,953
Total expenses		240,131
Net income		33,219