Chapter 18, Problem 14E

To determine

Concept Introduction:

Income statement: An income statement can be defined as the statement explaining the company’s financial performance over a specific accounting period. The income or revenues are recorded on the income statement along with the expenses incurred for the period.

To prepare:

Income statement for Delray Mfg. (a manufacturer)

Answer to Problem 14E

Solution:

Delray Mfg.
Income statement
For the year Ended December 31, 2017
Sales		$ 1,250,000
Less: Cost of goods sold
Cost of good manufactured	$ 534,390
Add: Finished Goods Inventory - Beginning	$ 62,750
Less: Finished Goods Inventory - Ending	$ 67,300
Cost of Goods sold		$ 529,840
Gross profit		$ 720,160
Less: Selling and administrative expenses
Advertising expense	$ 94,000
General and administrative expense	$ 129,300
Total selling and administrative expense		$ 223,300
Net Operating Income		$ 496,860

Explanation of Solution

The income statement is prepared as under –

Given,

• Sales = $ 1,250,000

• Cost of Goods manufactured = $ 534,390

• Finished Goods Inventory – Beginning = $ 62,750

• Finished Goods Inventory – Ending = $ 67,300

• Advertising expense = $ 94,000

• General and administrative expense = $ 129,300

First,

a. The cost of goods sold is calculated. It is calculated as under –

$\begin{array}{l}CostofGoodssold=\\ CostofGoodsmanufactured\\ +FinishedGoodsInventoryBeginning\\ -FinishedGoodsInventoryEnding\end{array}$

$\begin{array}{l}CostofGoodssold=\$534,390+\$62,750-\$67,300\\ CostofGoodssold=\$529,840\end{array}$

b. Gross profit is calculated as under –

$\begin{array}{l}Grossprofit=Sales–CostofGoodssold\\ Grossprofit=\$1,250,000-\$529,840\\ Grossprofit=\$720,160\end{array}$

c. Total selling and administrative expenses are calculated as under –

$\begin{array}{l}Totalsellingandadministrativeexpenses=\\ Advertisingexpense\\ +Generalandadministrativeexpense\end{array}$

$\begin{array}{l}Totalsellingandadministrativeexpenses=\$94,000+\$129,300\\ Totalsellingandadministrativeexpenses=\$223,300\end{array}$

d. Net operating Income is calculated as under –

$\begin{array}{l}Netoperatingincome=Grossprofit-Totalsellingandadministrativeexpenses\\ Netoperatingincome=\$720,160-\$223,300\\ Netoperatingincome=\$496,860\end{array}$

The income statement for Delray Mfg. has been prepared. The net income for the year ending December 31, 2017 is $ 496,860.

Conclusion

Thus, the income statement for Delray Mfg. for the year ending December 31, 2017 has been prepared.