Chapter 13, Problem 2PA

Good to Go Auto Products distributes automobile parts to service stations and repair shops. The adjusted trial balance data that follows is from the firm’s worksheet for the year ended December 31, 2019.

INSTRUCTIONS

1. 1. Prepare a classified income statement for the year ended December 31, 2019. The expense accounts represent warehouse expenses, selling expenses, and general and administrative expenses.
2. 2. Prepare a statement of owner’s equity for the year ended December 31, 2019. No additional investments were made during the period.
3. 3. Prepare a classified balance sheet as of December 31, 2019. The mortgage payable extends for more than one year.

ACCOUNTS

Analyze: What percentage of total operating expenses is attributable to warehouse expenses?

To determine

Show the Classified Income Statement.

Explanation of Solution

Classified Income statement: The classified income statement is a financial statement that shows the revenues, expenses with various classifications and sub-totals. The classified income statement is used for complex income statement as its more easily understandable.

Prepare the classified income statement:

Company GGAP
Income Statement
Year Ended December 31, 2019
Particulars	Amount ($)	Amount ($)	Amount ($)	Amount ($)
Operating Revenue
Sales				$1,110,300
Less: Sales Returns and Allowances				$8,400
Net Sales				$1,101,900
Cost of Goods Sold
Merchandise Inventory, January 1, 2019			$131,400
Purchases		$463,000
Freight In		$9,800
Delivered Cost of Purchases		$472,800
Less: Sales Returns and Allowances	$13,650
Purchases Discount	$9,240	$22,890
Net Delivered Cost of Purchases			$449,910
Total Merchandise Available for sale			$581,310
Less: Merchandise Inventory, closing			$128,500
Cost of Goods Sold				$452,810
Gross Profit on Sales				$649,090
Operating Expenses
Warehouse Expenses
Warehouse Wages Expense		$108,600
Warehouse Supplies Expense		$5,800
Depreciation Expense — Warehouse Equipment		$3,400
Total Warehouse Expense			$117,800
Selling Expenses
Salaries Expense—Sales		$151,700
Travel Expense		$24,000
Delivery Expense		$37,425
Total Selling Expense			$213,125
General and Administrative Expenses
Salaries Expense—Office		$85,000
Office Supplies Expense		$1,220
Insurance Expense		$9,875
Utilities Expense		$8,000
Telephone Expense		$3,280
Payroll Taxes Expense		$31,600
Building Repair Expense		$3,700
Property Taxes Expense		$16,400
Uncollectible Accounts Expense		$3,580
Depreciation Expense - Building		$5,600
Depreciation Expense - Office Equipment		$1,620
Total General and Admin. Expenses			$169,875
Total Operating Expenses				$500,800
Income from Operations				$148,290
Other Income
Interest Income			$580
Other Expense
Interest Expense			$4,000
Net Non-operating expenses				$3,420
Net income for the year				$144,870

Table (1)

To determine

Show the Statement of Owner's equity.

Explanation of Solution

Statement of owner's’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owner's’ equity.

Prepare the Statement of owner's’ equity:

Company GGAP
Statement of Owner's Equity
Year Ended December 31, 2019
Particulars	Amount ($)	Amount ($)
CB Capital, January 1, 2019		$326,870
Net income for the year	$144,870
Deduct - Withdrawals	$70,650
Increase in Capital		$74,220
CB Capital, December 31, 2019		$401,090

Table (2)

To determine

Show the Classified Balance Sheet and compute the total operating expenses percentage related to the warehouse expenses.

Explanation of Solution

Classified balance sheet: The main elements of balance sheet assets, liabilities, and stockholders’ equity are categorized or classified further into sections, and sub-sections in a classified balance sheet. Assets are further classified as current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets. Liabilities are classified into two sections current and long-term. Stockholders’ equity comprises of common stock and retained earnings. Thus, the classified balance sheet includes all the elements under different sections.

Prepare the classified balance sheet:

Company GGAP
Balance Sheet
December 31, 2019
Particulars	Amount ($)	Amount ($)	Amount ($)
Assets
Current Assets
Cash			$99,000
Petty Cash Fund			$600
Notes receivable			$15,000
Accounts receivable		$140,200
Less: Allowance for Doubtful Debts		$3,800	$136,400
Merchandise Inventory			$128,500
Interest Receivable			$150
Prepaid expenses
Warehouse Supplies		$3,300
Store Supplies		$700
Prepaid insurance		$4,640	$8,640
Total Current Assets			$388,290
Plant and Equipment
Land		$16,000
Building	$107,000
Less: Accumulated Depreciation	$16,700	$90,300
Warehouse Equipment	$19,800
Less: Accumulated Depreciation	$9,500	$10,300
Office Equipment	$9,400
Less: Accumulated Depreciation	$3,900	$5,500
Total Plant and Equipment			$122,100
Total Assets			$510,390
Liabilities and Owner's Equity
Current Liabilities
Notes Payable		$15,000
Accounts payable		$56,900
Interest Payable		$400
Total Current Liabilities			$72,300
Long Term Liabilities
Mortgage payable		$20,000
Loans Payable		$17,000
Total Long-Term Liabilities			$37,000
Total Liabilities			$109,300
Owner's Equity
CR Capital			$401,090
Total Liabilities and Owner's Equity			$510,390

Table (3)

Operating expenses: The expenses which are incurred in day-to-day business activities but not directly allied with the production of goods and service are called operating expenses. They are classified under three big categories: “administrative expenses, selling expenses, and general expenses”. The operating expenses exclude the financing expenses.

Compute the Operating expenses percentage:

$\begin{array}{c}\begin{array}{l}\text{Operating expenses}\\ \text{Percentage}\end{array}\}\text{ = }\frac{\text{Operating expenses}}{\text{Warehouse expenses}}\times 100\\ =\frac{\$117,800}{\$500,800}\times 100\\ =23.52\%\end{array}$

The total operating expenses percentage related to the warehouse expenses is 23.52%.