Chapter E, Problem 1P

Bay Book and Software has two sales departments: Book and Software. After recording and posting all adjustments, including the adjustments for merchandise inventory, the accountant prepared the adjusted trial balance (shown on the next page) at the end of the fiscal year.

Merchandise inventories at the beginning of the year were as follows: Book Department, $53,410; Software Department, $23,839. The bases (and sources of figures) for apportioning expenses to the two departments are as follows (rounded to the nearest dollar):

• Sales Salary Expense (payroll register): Book Department, $45,559; Software Department, $35,629
• Advertising Expense (newspaper column inches): Book Department, 550 inches; Software Department, 450 inches
• Depreciation Expense, Store Equipment (property and equipment ledger): Book Department, $7,851; Software Department, $2,682
• Store Supplies Expense (requisitions): Book Department, $205; Software Department, $199
• Miscellaneous Selling Expense (volume of gross sales): Book Department, $240; Software Department, $110
• Rent Expense and Utilities Expense (floor space): Book Department, 9,000 square feet; Software Department, 7,000 square feet
• Bad Debts Expense (volume of gross sales): Book Department, $1,029; Software Department, $441
• Miscellaneous General Expense (volume of gross sales): Book Department, $364; Software Department, $156

Required

Prepare an income statement by department to show income from operations, as well as a nondepartmentalized income statement (using the Total columns) to show net income for the entire company.

To determine

Prepare an income statement for B Book and Software by department, and non-departmentalized (total) income statement for the year ended December 31, 20--.

Explanation of Solution

Income statement: The 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 is referred to as income statement.

Prepare an income statement for B Book and Software by department, and non-departmentalized (total) income statement for the year ended December 31, 20--.

Table (1)

Conclusion

Thus, the income statement of B Book and Software for the year ended December 31, 20—reports income from operations of $42,599.50 for Book Department, and loss from operations of $6,947.50 for Software Department, and total net income of $34,444.00.