Chapter 4, Problem 1E

To determine

Calculate the missing amounts of the income statement a through e.

Answer to Problem 1E

The following table shows the missing amounts of the merchandiser’s profit data.

Particulars	a ($)	b ($)	c ($)	d ($)	e ($)
Sales	62,000	43,500	46,000	79,000 (9)	25,600
Cost of goods sold
Merchandise inventory (beginning)	8,000	17,050	7,500	8,000	4,560
Total cost of merchandise purchases	38,000	1,950 (4)	43,750 (7)	32,000	6,600
Merchandise inventory (ending)	(11,950) (1)	(3,000)	(9,000)	(6,600)	(4,160) (10)
Cost of goods sold	34,050	16,000	42,250 (6)	33,400 (8)	7,000
Gross profit	27,950 (2)	27,500 (5)	3,750	45,600	18,600 (11)
Less: Expenses	(10,000)	(10,650)	(12,150)	(3,600)	(6,000)
Net income (loss)	17,950 (3)	16,850	8,400	42,000	12,600 (12)

Table (1)

Explanation of Solution

Cost of goods sold indicates the costs involved for the inventory sold by the business in a specific period of time. Its mathematical representation is as below:

$\text{Cost of Goods Sold}=\text{Beginning Inventory}+\text{Purchases}–\text{Ending Inventory}$

Gross profit represents the revenue after the deduction of cost of goods sold from the net sales of a business. Its mathematical representation is as below:

$\text{Gross profit}=\text{Net sales}–\text{Cost of goods sold}$

Calculate the ending merchandise inventory of a’s income statement.

Cost of goods sold = $34,050

Total cost of merchandise purchase = $38,000

Beginning merchandise inventory = $8,000

$\begin{array}{c}\text{Ending merchandise inventory}\text{=}\left[\begin{array}{l}\left(\text{Beginning merchandise inventory}\text{+}\text{Purchases}\right)\\ -\text{Cost of goods sold}\end{array}\right]\\ =\left[\left(\$8,000+\$38,000\right)-\$34,050\right]\\ =\$11,950\end{array}$ (1)

Calculate the gross profit of a’s income statement.

Sales = $62,000

Cost of goods sold = $34,050

$\begin{array}{c}\text{Gross profit}\text{=}\text{Sales}-\text{Cost of goods sold}\\ =\$62,000-\$34,050\\ =\$27,950\end{array}$ (2)

Calculate net income of a’s income statement.

Gross profit = $27,950 (2)

Expenses = $10,000

$\begin{array}{c}\text{Net income}\text{=}\text{Gross profit}-\text{Expenses}\\ =\$27,950-\$10,000\\ =\$17,950\end{array}$ (3)

Calculate the total cost of merchandise purchase of b’s income statement.

Cost of goods sold = $16,000

Beginning merchandise inventory = $17,050

Ending merchandise inventory = $3,000

$\begin{array}{c}\text{Purchases}\text{=}\left[\begin{array}{l}\left(\text{Cost of goods sold}\text{+}\text{Ending merchandise inventory}\right)\\ -\text{Beginning merchandise inventory}\end{array}\right]\\ =\left[\left(\$16,000+\$3,000\right)-\$17,050\right]\\ =\$1,950\end{array}$ (4)

Calculate the gross profit of b’s income statement.

Sales = $43,500

Cost of goods sold = $16,000

$\begin{array}{c}\text{Gross profit}\text{=}\text{Sales}-\text{Cost of goods sold}\\ =\$43,500-\$16,000\\ =\$27,500\end{array}$ (5)

Calculate the cost of goods sold of c’s income statement.

Sales = $46,000

Gross profit = $3,750

$\begin{array}{c}\text{Cost of goods sold}\text{=}\text{Sales}-\text{Gross profit}\\ =\$46,000-\$3,750\\ =\$42,250\end{array}$ (6)

Calculate the total cost of merchandise purchase of c’s income statement.

Cost of goods sold = $42,250 (6)

Beginning merchandise inventory = $7,500

Ending merchandise inventory = $9,000

$\begin{array}{c}\text{Purchases}\text{=}\left[\begin{array}{l}\left(\text{Cost of goods sold}\text{+}\text{Ending merchandise inventory}\right)\\ -\text{Beginning merchandise inventory}\end{array}\right]\\ =\left[\left(\$42,250+\$9,000\right)-\$7,500\right]\\ =\$43,750\end{array}$ (7)

Calculate the cost of goods sold of d’s income statement.

Total cost of merchandise purchase = $32,000

Beginning merchandise inventory = $8,000

Ending merchandise inventory = $6,600

$\begin{array}{c}\text{Cost of goods sold}\text{=}\left[\begin{array}{l}\left(\text{Purchases}\text{+}\text{Beginning merchandise inventory}\right)\\ -\text{Ending}\text{merchandise inventory}\end{array}\right]\\ =\left[\left(\$32,000+\$8,000\right)-\$6,600\right]\\ =\$33,400\end{array}$ (8)

Calculate the sales of d’s income statement.

Gross profit = $45,600

Cost of goods sold = $33,400 (8)

$\begin{array}{c}\text{Sales}\text{=}\text{Cost of goods sold}+\text{Gross profit}\\ =\$33,400-\$45,600\\ =\$79,000\end{array}$ (9)

Calculate the ending merchandise inventory of e’s income statement.

Cost of goods sold = $7,000

Total cost of merchandise purchase = $6,600

Beginning merchandise inventory = $4,560

$\begin{array}{c}\text{Ending merchandise inventory}\text{=}\left[\begin{array}{l}\left(\text{Beginning merchandise inventory}\text{+}\text{Purchases}\right)\\ -\text{Cost of goods sold}\end{array}\right]\\ =\left[\left(\$4,560+\$6,600\right)-\$7,000\right]\\ =\$4,160\end{array}$ (10)

Calculate the gross profit of e’s income statement.

Sales = $25,600

Cost of goods sold = $7,000

$\begin{array}{c}\text{Gross profit}\text{=}\text{Sales}-\text{Cost of goods sold}\\ =\$25,600-\$7,000\\ =\$18,600\end{array}$ (11)

Calculate net income of e’s income statement.

Gross profit = $18,600 (2)

Expenses = $6,000

$\begin{array}{c}\text{Net income}\text{=}\text{Gross profit}-\text{Expenses}\\ =\$18,600-\$6,000\\ =\$12,600\end{array}$ (12)