Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 1 Problem 2-6
Problem 2-6 (Functional method)
Karla Company
Income Statement
Year ended December 31, 2008
Note
Net sales revenue (1) 7,700,000
Cost of sales (2) (5,000,000)
Gross income 2,700,000
Other income (3) 400,000
Total income 3,100,000
Expenses:
Selling expenses (4) 950,000
Administrative expenses (5) 800,000
Other expenses (6) 100,000 1,850,000
Income before tax 1,250,000
Income tax ( 250,000)
Net income 1,000,000
Note 1 – Net sales revenue
Gross sales 7,850,000
Sales returns and allowances ( 140,000)
Sales discounts ( 10,000)
Net sales revenue 7,700,000
Note 2 – Cost of sales
Inventory, January 1 1,000,000
Purchases 5,250,000
Freight in 500,000
Purchase returns and allowances ( 150,000)
Purchase discounts ( 100,000)
Net purchases 5,500,000
Goods available for sale 6,500,000
Inventory, December 31 (1,500,000)
Cost of sales 5,000,000
Note 3 – Other income
Rental income 250,000
Dividend revenue 150,000
Total other income 400,000
15
Note 4 – Selling expenses
Freight out 175,000
Salesmen’s commission 650,000
Depreciation – store equipment 125,000
Total selling expenses 950,000
Note 5 – Administrative expenses
Officers’ salaries 500,000
Depreciation – office equipment 300,000
Total administrative expenses 800,000
Note 6 – Other expenses
Loss on sale of equipment 50,000
Loss on sale of investment 50,000
Total other expenses 100,000
Natural method
Karla Company
Income Statement
Year ended December 31, 2008
Note
Net sales revenue (1) 7,700,000
Other income (2) 400,000
Total 8,100,000
Expenses:
Increase in inventory (3) ( 500,000)
Net purchases (4) 5,500,000
Freight out 175,000
Salesmen’s commission 650,000
Depreciation (5) 425,000
Officers’ salaries 500,000
Other expenses (6) 100,000 6,850,000
Income before tax 1,250,000
Income tax ( 250,000)
Net income 1,000,000
16
Note 1 – Net sales revenue
Gross sales 7,850,000
Sales returns and allowances ( 140,000)
Sales discounts ( 10,000)
Net sales revenue 7,700,000
Note 2 – Other income
Rental income 250,000
Dividend revenue 150,000
Total other income 400,000
Note 3 – Increase in inventory
Inventory, December 31 1,500,000
Inventory, January 1 1,000,000
Increase in inventory 500,000
Note 4 – Net purchases
Purchases 5,250,000
Freight in 500,000
Purchase returns and allowances ( 150,000)
Purchase discounts ( 100,000)
Net purchases 5,500,000
Note 5 – Depreciation
Depreciation – store equipment 125,000
Depreciation – office equipment 300,000
Total 425,000
Note 6 – Other expenses
Loss on sale of equipment 50,000
Loss on sale of investment 50,000
Total 100,000
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