Chapter 18, Problem 9E

1.

To determine

Prepare income statement for G Company and P Company.

Explanation of Solution

The income statement is a financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period.

Prepare income statement for G Company and P Company.

G COMPANY
Income Statement
For Year Ended December 31, 2015
Particulars	Amount ($)
Sales	195,030
Less: Cost of goods sold	91,030
Gross profit	104,000
Operating expenses
Selling expenses	50,000
General and administrative expenses	21,000
Income before tax	$ 33,000

 (Table 1)

P COMPANY
Income Statement
For Year Ended December 31, 2015
Particulars	Amount ($)
Sales	$ 290,010
Less: Cost of goods sold	143,010
Gross profit	147,000
Operating expenses
Selling expenses	43,000
General and administrative expenses	46,000
Income before tax	$ 58,000

 (Table 2)

Note: Refer to working note (table 4) for cost of goods sold.

Working note:

Cost of goods manufactured is determined as below:

Cost Of Goods Manufactured
	G Company	P Company
	Amount  ($)	Amount  ($)
Direct materials
Beginning raw materials inventory	$    7,250	$    9,000
Raw materials purchases	33,000	52,000
Raw materials available for use	40,250	61,000
Less: Ending raw materials inventory	5,300	7,200
Direct materials used	34,950	53,800
Direct labor	19,000	35,000
Factory overhead
Rental cost on factory equipment	27,000	22,750
Factory utilities	9,000	12,000
Factory supplies used	8,200	3,200
Indirect labor	1,250	7,660
Repairs—Factory equipment	4,780	1,500
Total factory overhead	50,230	47,110
Total manufacturing costs	104,180	135,910
Beginning work in process inventory	14,500	19,950
Total cost of work in process	118,680	155,860
Less: Ending work in process inventory	22,000	16,000
Cost of goods manufactured	$  96,680	$139,860

 (Table 3)

 Cost of goods sold is determined as below:

Cost of Goods Sold
	G Company	P Company
	Amount  ($)	Amount  ($)
Beginning finished goods inventory	$  12,000	$  16,450
Cost of goods manufactured	96,680	139,860
Cost of goods available for sale	108,680	156,310
Less: Ending finished goods inventory	17,650	13,300
Cost of goods sold	$  91,030	$143,010

(Table 4)

2.

To determine

Prepare current assets section of the balance sheet for G Company and P Company.

Explanation of Solution

Balance Sheet: Balance sheet is the financial statement prepared by the company. It comprises of the assets, liabilities, and owner’s equity of the company. It shows the financial position of the business for a particular period.

Current assets: Current assets are the liquid assets which can be converted into cash within one year. Current assets include cash, cash equivalents, accounts receivable, short-term investments, inventories, and prepaid expenses.

Prepare current assets section of the balance sheet for G Company and P Company.

G COMPANY
Partial Balance Sheet
As of December 31, 2015
Current Assets	Amount ($)	Amount ($)
Cash		$20,000
Accounts receivable, net		13,200
Inventories
Raw materials inventory	$  5,300
Work in process inventory	22,000
Finished goods inventory	17,650	44,950
Total current assets		$78,150

(Table 5)

P COMPANY
Partial Balance Sheet
As of December 31, 2015
Cash		$15,700
Accounts receivable, net		19,450
Inventories
Raw materials inventory	$  7,200
Work in process inventory	16,000
Finished goods inventory	13,300	36,500
Total current assets		$71,650

(Table 6)

Conclusion

Hence, cost of goods sold for G Company and P Company are $91,030 and $143,010 respectively.