Concept explainers
Hog Wild is a retail firm that sells motorcycles, parts, and accessories. The adjusted
INSTRUCTIONS
- 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. Prepare a statement of owner’s equity for the year ended December 31, 2019. No additional investments were made during the period.
- 3. Prepare a classified
balance sheet as of December 31, 2019. The mortgage payable extends for more than one year.
ACCOUNTS
Analyze: What is the inventory turnover for Hog Wild?
1.
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 HW | ||||
Income Statement | ||||
Year Ended December 31, 2019 | ||||
Particulars | Amount ($) | Amount ($) | Amount ($) | Amount ($) |
Operating Revenue | ||||
Sales | $608,417 | |||
Less: Sales Returns and Allowances | $9,400 | |||
Net Sales | $599,017 | |||
Cost of Goods Sold | ||||
Merchandise Inventory, January 1, 2019 | $88,980 | |||
Purchases | $230,050 | |||
Freight In | $9,600 | |||
Delivered Cost of Purchases | $239,650 | |||
Less: Sales Returns and Allowances | $6,420 | |||
Purchases Discount | $5,760 | $12,180 | ||
Net Delivered Cost of Purchases | $227,470 | |||
Total Merchandise Available for sale | $316,450 | |||
Less: Merchandise Inventory, closing | $87,915 | |||
Cost of Goods Sold | $228,535 | |||
Gross Profit on Sales | $370,482 | |||
Operating Expenses | ||||
Warehouse Expenses | ||||
Warehouse Wages Expense | $64,300 | |||
Warehouse Supplies Expense | $4,300 | |||
Depreciation Expense — Warehouse Equipment | $2,400 | |||
Total Warehouse Expense | $71,000 | |||
Selling Expenses | ||||
Salaries Expense—Sales | $78,900 | |||
Travel Expense | $21,000 | |||
Delivery Expense | $35,400 | |||
Total Selling Expense | $135,300 | |||
General and Administrative Expenses | ||||
Salaries Expense—Office | $57,500 | |||
Office Supplies Expense | $1,360 | |||
Insurance Expense | $9,500 | |||
Utilities Expense | $6,912 | |||
Telephone Expense | $4,370 | |||
Payroll Taxes Expense | $19,200 | |||
Building Repair Expense | $11,700 | |||
Property Taxes Expense | $3,100 | |||
Uncollectible Accounts Expense | $2,900 | |||
Depreciation Expense - Building | $3,200 | |||
Depreciation Expense - Office Equipment | $1,680 | |||
Total General and Admin. Expenses | $121,422 | |||
Total Operating Expenses | $327,722 | |||
Income from Operations | $42,760 | |||
Other Income | ||||
Interest Income | $720 | |||
Other Expense | ||||
Interest Expense | $3,600 | |||
Net Non-operating expenses | $2,880 | |||
Net income for the year | $39,880 |
Table (1)
2.
Show the Statement of Owner's equity.
Explanation of Solution
Statement of owner's’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owner's’ equity.
Prepare the Statement of owner's’ equity:
Company HW | ||
Statement of Owner's Equity | ||
Year Ended December 31, 2019 | ||
Particulars | Amount ($) | Amount ($) |
NH Capital, January 1, 2019 | $198,710 | |
Net income for the year | $39,880 | |
Deduct - Withdrawals | $56,000 | |
Decrease in Capital | ($16,120) | |
NH Capital, December 31, 2019 | $182,590 |
Table (2)
3.
Show the Classified Balance Sheet and compute the inventory turnover of Company AW.
Explanation of Solution
Classified balance sheet: The main elements of balance sheet assets, liabilities, and stockholders’ equity are categorized or classified further into sections, and sub-sections in a classified balance sheet. Assets are further classified as current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets. Liabilities are classified into two sections current and long-term. Stockholders’ equity comprises of common stock and retained earnings. Thus, the classified balance sheet includes all the elements under different sections.
Prepare the classified balance sheet:
Company HW | |||
Balance Sheet | |||
December 31, 2019 | |||
Particulars | Amount ($) | Amount ($) | Amount ($) |
Assets | |||
Current Assets | |||
Cash | $14,350 | ||
Petty Cash Fund | $200 | ||
Notes receivable | $6,000 | ||
Accounts receivable | $54,600 | ||
Less: Allowance for Doubtful Debts | $5,000 | $49,600 | |
Merchandise Inventory | $87,915 | ||
Interest Receivable | $200 | ||
Prepaid expenses | |||
Warehouse Supplies | $3,700 | ||
Office Supplies | $1,800 | ||
Prepaid insurance | $6,900 | $12,400 | |
Total Current Assets | $170,665 | ||
Plant and Equipment | |||
Land | $20,400 | ||
Building | $53,100 | ||
Less: Accumulated Depreciation | $8,400 | $44,700 | |
Warehouse Equipment | $24,000 | ||
Less: Accumulated Depreciation | $4,000 | $20,000 | |
Office Equipment | $12,800 | ||
Less: Accumulated Depreciation | $1,800 | $11,000 | |
Total Plant and Equipment | $96,100 | ||
Total Assets | $266,765 | ||
Liabilities and Owner's Equity | |||
Current Liabilities | |||
Notes Payable | $8,000 | ||
Accounts payable | $32,500 | ||
Interest Payable | $1,800 | ||
Total Current Liabilities | $42,300 | ||
Long Term Liabilities | |||
Mortgage payable | $35,875 | ||
Notes Payable - Long Term | $6,000 | ||
Total Long-Term Liabilities | $41,875 | ||
Total Liabilities | $84,175 | ||
Owner's Equity | |||
CR Capital | $182,590 | ||
Total Liabilities and Owner's Equity | $266,765 |
Table (3)
Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period. Inventory turnover ratio is calculated by using the formula:
Compute the inventory turnover ratio:
Compute the average inventory:
The inventory turnover is 2.58 times.
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