Chapter 5, Problem 3PSB

To determine

Concept Introduction:

Net Sales:

The net sales can be defined as sales after subtracting sales discounts and sales returns and allowances. The net sales are the sales which actually took place. The net sales are calculated as −

  $\text{Net Sales = Sales – Sales Discounts – Sales returns and allowances}$

To compute:

The Company's net sales

To determine

Concept Introduction:

Total cost of Merchandise:

Cost of merchandise can be defined as the total cost incurred to purchase the goods. The cost of merchandise is calculated after subtracting purchase discounts received and purchases returns and allowances from Invoice cost of merchandise purchase and adding cost of transportation to it.

  $\begin{array}{l}\text{Total cost of merchandise = Invoice cost of merchandise – }\left(\begin{array}{l}\text{Purchase Discounts received}\\ \text{+ Purchase returns and allowances}\end{array}\right)\\ \text{ + Cost of transportation-in}\end{array}$

To Compute:

The Company's total cost of merchandise

The Company's total cost of merchandise = $ 134,600

The Company's total cost of merchandise is calculated as under −

Given,

• Invoice cost of merchandise purchase = $ 138,500
• Purchase Discounts received = $ 2,950
• Purchase returns and allowances = $6,700
• Cost of transportation-in = $ 5,750

  $\begin{array}{l}\text{Total cost of merchandise = Invoice cost of merchandise – }\left(\begin{array}{l}\text{Purchase Discounts received}\\ \text{+ Purchase returns and allowances}\end{array}\right)\\ \text{ + Cost of transportation-in}\end{array}$

  $\begin{array}{l}\text{Total cost of merchandise = \$ 138,500 - \$ 2,950 - \$ 6,700 + \$ 5,750}\hfill \\ \text{Total cost of merchandise = \$ 134,600}\hfill \end{array}$

Concept Introduction:

Income Statement:

The income statement can be explained as the statement giving details about the revenues, incomes, gains and expenses, losses etc. The income statement is prepared to determine net income or loss of the business by listing all the revenues, gains and expenses and losses of the business. It can be single step income statement as well multi step income statement.

To prepare:

Multi step income statement that includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses

Barkley Company
Income Statement
For the year Ended March 31, 201X
Sales		332,650
Less:
Sales Discounts	5,875
Sales returns and allowances	20,000	25,875
Net Sales		306,775
Less: Cost of goods sold		115,600
Gross profit		191,175
Expenses
Selling expenses
Sales Salaries Expenses	44,500
Rent expense - Selling space	16,000
Store supplies expenses	3,850
Advertising Expense	26,000
Total selling expenses		90,350
General and administrative expenses
Office salaries expense	40,750
Rent expense - Office space	3,800
Office Supplies Expense	1,100
Total general and administrative expenses		45,650
Total Expenses		136,000
Net Income		55,175

The above income statement is prepared as under −

Given,

• Sales = $ 332,650
• Sales discounts = $ 5,875
• Sales returns and allowances = $ 20,000
• Cost of goods sold = $ 115,600
• Sales Salaries Expenses = $ 44,500
• Rent expense - Selling space = $ 16,000
• Store supplies expenses = $ 3,850
• Advertising Expense = $ 26,000
• Office salaries expense = $ 40,750
• Rent expense - Office space = $ 3,800
• Office Supplies Expense = $ 1,100

  $\begin{array}{l}\text{Net Sales = Sales – Sales Discounts – Sales returns and allowances}\hfill \\ \text{Net Sales = \$ 332,650 - \$ 5,875 - \$ 20,000}\hfill \\ \text{Net Sales = \$ 306,775}\hfill \end{array}$

  $\begin{array}{l}\text{Gross Profit = Net Sales – Cost of Goods Sold}\hfill \\ \text{Gross Profit = \$ 306,774 – \$ 115,600}\hfill \\ \text{Gross Profit = \$ 191,175}\hfill \\ \text{Total selling expenses = }\left(\begin{array}{l}\text{Sales Salaries Expenses +Rent expense - Selling space }\\ \text{+ Store supplies expenses + Advertising Expense}\end{array}\right)\hfill \\ \text{Total selling expenses = \$ 44,500 + \$ 16,000 + \$ 3,850 + \$ 26,000}\hfill \\ \text{Total selling expenses = \$ 90,350}\hfill \\ \begin{array}{l}\text{Total general and administrative expenses = (Office salaries expense + Rent expense - Office space }\\ \text{ + Office Supplies Expense)}\end{array}\hfill \\ \text{Total general and administrative expenses = \$ 40,750 + \$ 3,800 + \$ 1,100}\hfill \\ \text{Total general and administrative expenses = \$ 45,650}\hfill \\ \text{Total Expenses = Total selling expenses + Total general and administrative expenses}\hfill \\ \text{Total Expenses = \$ 90,350 + \$ 45,650}\hfill \\ \text{Total Expenses = \$ 136,000}\hfill \\ \text{Net Income = Gross profit – Total expenses}\hfill \\ \text{Net Income = \$ 191,175 - \$ 136,000}\hfill \\ \text{Net Income = \$ 55,175}\hfill \end{array}$

Income Statement:

The income statement can be explained as the statement giving details about the revenues, incomes, gains and expenses, losses etc. The income statement is prepared to determine net income or loss of the business by listing all the revenues, gains and expenses and losses of the business. It can be single step income statement as well multi step income statement.

To prepare:

Single-step Income statement that includes categories like net sales, cost of goods sold, selling expenses, and general and administrative expenses

Barkley Company
Income Statement
For the year Ended March 31, 201X
Net Sales		306,775
Less:
Expenses
Cost of goods sold	115,600
Total selling expenses	90,350
Total general and administrative expenses	45,650
Total expenses		251,600
Net Income		55,175

The single step income statement is prepared as under −

Given,

• Sales = $ 332,650
• Sales discounts = $ 5,875
• Sales returns and allowances = $ 20,000
• Cost of goods sold = $ 115,600
• Sales Salaries Expenses = $ 44,500
• Rent expense - Selling space = $ 16,000
• Store supplies expenses = $ 3,850
• Advertising Expense = $ 26,000
• Office salaries expense = $ 40,750
• Rent expense - Office space = $ 3,800
• Office Supplies Expense = $ 1,100

The net sales were calculated −

  $\begin{array}{l}\text{Net Sales = Sales – Sales Discounts – Sales returns and allowances}\hfill \\ \text{Net Sales = \$ 332,650 - \$ 5,875 - \$ 20,000}\hfill \\ \text{Net Sales = \$ 306,775}\hfill \end{array}$

  $\begin{array}{l}\begin{array}{l}\text{Total expenses = (Cost of Goods sold + Total selling expenses }\\ \text{ + Total general and administrative expenses)}\end{array}\hfill \\ \text{Total expenses = \$ 115,600 + \$ 90,350 + \$ 45,650}\hfill \\ \text{Total expenses = \$ 251,600}\hfill \\ \text{Net Income = Net Sales – Total Expenses}\hfill \\ \text{Net Income = \$ 306,775 - \$ 251,600}\hfill \\ \text{Net Income = \$ 55,175}\hfill \end{array}$

To determine

Concept Introduction:

Income Statement:

The income statement can be explained as the statement giving details about the revenues, incomes, gains and expenses, losses etc. The income statement is prepared to determine net income or loss of the business by listing all the revenues, gains and expenses and losses of the business. It can be single step income statement as well multi step income statement.

To prepare:

Multi step income statement that includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses

To determine

Income Statement:

The income statement can be explained as the statement giving details about the revenues, incomes, gains and expenses, losses etc. The income statement is prepared to determine net income or loss of the business by listing all the revenues, gains and expenses and losses of the business. It can be single step income statement as well multi step income statement.

To prepare:

Single-step Income statement that includes categories like net sales, cost of goods sold, selling expenses, and general and administrative expenses