Chapter 5, Problem 8E

Cost of Goods Sold, Income Statement. and Statement of Comprehensive Income Gaskin Company derives the following items from its adjusted trial balance as of December 31, 2019:

The following; additional information is also available. The December 31, 2019, ending inventory is $14,700. During 2019, 4,200 shares of'common stock were outstanding the entire year. The income tax rate а 30% on all items of income.

Required:

1. 1. As a supporting document for Requirements 2 and 3, prepare a separate schedule for Gaskin’s cost of goods sold.
2. 2. Prepare a 2019 single-step income statement.
3. 3. Prepare a 2019 multiple-step income statement.
4. 4. Prepare a 2019 statement of comprehensive income.

To determine

Prepare a schedule for Company G’ cost of goods sold.

Explanation of Solution

Cost of goods sold: Cost of goods sold is the total of all the expenses incurred by a company to sell the goods during the given period.

Schedule of cost of goods sold is a report which reports cost of goods sold in a detailed manner.

Prepare a schedule for Company G’ cost of goods sold.

Company G
Schedule 1: Cost of goods sold
For the year ended December 31, 2019
Particulars	Amount ($)	Amount ($)
Beginning inventory		$12,100
Purchases	$89,700
Freight-in	$3,400
Cost of purchase	$93,100
Less: Purchases returns	($5,200)
Less: Purchase discount takes	($2,700)
Net purchases		$85,200
Cost of goods available for sale		$97,300
Less: Ending inventory		($14,700)
Cost of goods sold		$82,600

Table (1)

To determine

Prepare a single step income statement for Company G for the year ended December 31, 2019.

Explanation of Solution

Single-step income statement: It is an income statement format in which a single subtotal of all revenue items are listed in one column, and a single subtotal of all expense items including cost of goods sold are listed in another column. Thus, the subtotal of all expense items is deducted from the subtotal of all revenue items to arrive at the net income at the bottom of the statement.

Prepare a single-step income statement for Company G for the year ended December 31, 2019.

Company G
Single-Step Income Statement
For the Year Ended December 31, 2019
Particulars	Amount	Amount
	($)	($)
Revenues:
Sales	$139,000
Interest revenue	$3,300
Gain on sale of equipment	$3,800
Total revenues (A)		$146,100
Expenses:
Cost of goods sold	$82,600
Selling expenses	$15,600
Administrative expense	$24,200
Loss from truck accident	$6,500
Income tax expense (1)	$5,160
Total expenses (B)		$134,060
Net income $\left(\text{C}=\text{A}-\text{B}\right)$		$12,040
Number of common shares (D)		4,200 shares
Earnings per share $\left(\frac{\text{C}}{\text{D}}\right)$		$2.87

Table (3)

Working note (1):

Calculate the income tax expense:

$\begin{array}{c}\text{Income tax expense}=\left(\begin{array}{l}\text{Total revenues}-\text{Cost of goods sold}-\\ \text{Selling expenses}-\text{Administrative expenses}-\\ \text{Loss from truck accident}\end{array}\right)\times \text{Tax rate}\\ =\left(\$146,100-\$82,600-\$15,600-\$24,200-\$6,500\right)\times 30\%\\ =\$5,160\end{array}$

To determine

Prepare a multi-step income statement for Company G for the year ended December 31, 2019.

Explanation of Solution

Multi step income statement: A multiple step income statement refers to the income statement that shows the operating and non-operating activities of the business under separate head. In different steps of the multi-step income statement, principal operating activities are reported that starts from the record of sales revenue with all contra sales revenue account like sales returns, allowances and sales discounts.

Prepare a multi-step income statement for Company G for the year ended December 31, 2019.

Company G
Multi-Step Income Statement
For the Year Ended December 31, 2019
Particulars	Amount	Amount
	($)	($)
Sales	$139,000
Less: Cost of goods sold	$82,600
Gross profit		$56,400
Operating expenses:
Selling expenses	$15,600
General and administrative expenses	$24,200
Total operating expenses		$39,800
Operating income		$16,600
Other items
Gain on sale of equipment	$3,800
Loss from truck accident	($6,500)
Interest revenue	$3,300	$600
Income before income tax		$17200
Less: Income taxes @30%		($5,160)
Net income (A)		$12,040
Number of common shares (B)		4,200 shares
Earnings per share $\left(\frac{A}{B}\right)$		$2.87

Table (2)

To determine

Prepare a statement of comprehensive income for the year ended December 31, 2019.

Explanation of Solution

Prepare a statement of comprehensive income for the year ended December 31, 2019.

Company G
Statement of comprehensive income
For the Year Ended December 31, 2019
Particulars	Amount	Amount
	($)	($)
Net income	$12,040
Other comprehensive income:
Unrealized increase in fair value of available for sale securities	$1,680
Comprehensive income		$13,720

Table (4)