Income Statements Segmented by Territory Script, Inc., has two product lines. The September income statements of each product line and the company are as follows: SCRIPT, INC. Product Line and Company Income Statements For Month of September Pens Pencils Total Sales $25,000 $30,000 $55,000 Less variable expenses (10,000) (12,000) (22,000) Contribution margin 15,000 18,000 33,000 Less direct fixed expenses (9,000) (8,000) (17,000) Product margin $6,000 $10,000 $16,000 Less common fixed expenses (6,000) Net income $10,000 Pens and pencils are sold in two territories, Florida and Alabama, as follows: Florida Alabama Pen sales $14,000 $11,000 Pencil sales 4,000 26,000 Total sales $18,000 $37,000 The preceding common fixed expenses are traceable to each territory as follows: Florida fixed expenses $2,000 Alabama fixed expenses 3,000 Home office administration fixed expenses 1,000 Total common fixed expenses $6,000 The direct fixed expenses of pens, $9,000, and of pencils, $8,000, cannot be identified with either territory. The company's accountants were unable to allocate any of the common fixed expenses to the various segments. Prepare income statements segmented by territory for September, including a column for the entire firm. Do not use negative signs with your answers. Script, Inc. Territory and Company Income Statements For the Month of September Florida Alabama Company Totals Sales: Pens Answer Answer Answer Pencils Answer Answer Answer Total sales Answer Answer Answer Variable costs: Pens Answer Answer Answer Pencils Answer Answer Answer Total Answer Answer Answer Contribution margin Answer Answer Answer Direct fixed expenses Answer Answer Answer Territory margin Answer Answer Answer Common fixed expenses: Pens Answer Pencils Answer Home office Answer Total Answer Net income Answer (b) Why are the direct expenses of one type of segment report not necessarily the direct expenses of another type of segment report? Because direct expenses are all variable costs. Because only fixed expenses are direct costs. Because costs that may be directly traceable to one segment base (i.e., territory) may not be directly traceable to another segment base (i.e., product). Because management must decide which costs are direct and which are indirect. None of the above. Please answer all parts of the question.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Income Statements Segmented by Territory
Script, Inc., has two product lines. The September income statements of each product line and the company are as follows:
| SCRIPT, INC. Product Line and Company Income Statements For Month of September |
|||
|---|---|---|---|
| Pens | Pencils | Total | |
| Sales | $25,000 | $30,000 | $55,000 |
| Less variable expenses | (10,000) | (12,000) | (22,000) |
| Contribution margin | 15,000 | 18,000 | 33,000 |
| Less direct fixed expenses | (9,000) | (8,000) | (17,000) |
| Product margin | $6,000 | $10,000 | $16,000 |
| Less common fixed expenses | (6,000) | ||
| Net income | $10,000 |
Pens and pencils are sold in two territories, Florida and Alabama, as follows:
| Florida | Alabama | |
|---|---|---|
| Pen sales | $14,000 | $11,000 |
| Pencil sales | 4,000 | 26,000 |
| Total sales | $18,000 | $37,000 |
The preceding common fixed expenses are traceable to each territory as follows:
| Florida fixed expenses | $2,000 |
| Alabama fixed expenses | 3,000 |
| Home office administration fixed expenses | 1,000 |
| Total common fixed expenses | $6,000 |
The direct fixed expenses of pens, $9,000, and of pencils, $8,000, cannot be identified with either territory. The company's accountants were unable to allocate any of the common fixed expenses to the various segments.
Prepare income statements segmented by territory for September, including a column for the entire firm. Do not use negative signs with your answers.
| Script, Inc. Territory and Company Income Statements For the Month of September |
|||
|---|---|---|---|
| Florida | Alabama | Company Totals | |
| Sales: | |||
| Pens | Answer | Answer | Answer |
| Pencils | Answer | Answer | Answer |
| Total sales | Answer | Answer | Answer |
| Variable costs: | |||
| Pens | Answer | Answer | Answer |
| Pencils | Answer | Answer | Answer |
| Total | Answer | Answer | Answer |
| Contribution margin | Answer | Answer | Answer |
| Direct fixed expenses | Answer | Answer | Answer |
| Territory margin | Answer | Answer | Answer |
| Common fixed expenses: | |||
| Pens | Answer | ||
| Pencils | Answer | ||
| Home office | Answer | ||
| Total | Answer | ||
| Net income | Answer |
(b) Why are the direct expenses of one type of segment report not necessarily the direct expenses of another type of segment report?
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