Analysis of Smith Company's Income Statement for December 2012

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Smith Company Income Statement For December 31, 2012 Revenues $370,500 Less Cost of Goods Sold 254,000 Gross Profit 116,500 Less Expenses Depreciation Expense $24,350 Insurance 1,400 Marketing 4,500 Property Taxes 8,900 Rent 18,000 Salaries 67,500 Utilities 6,700 131,350 Net Loss $(14,850) When the client had shown interest in the $35,000 worth of products, the original transaction would have been a debit to revenues and a credit to accounts payable. To adjust this transaction, since the client has not made a commitment, revenues would decrease the $35,000 as well as accounts payable being decreased $35,000. For the income statement adjustment, the revenues would be $35,000 less, resulting in $370,500 in revenues instead of the $406,000. No adjustment is needed to correct the cost of goods sold. The ending inventory was determined by a physical count of the inventory. When the count was done, an adjustment would have been made to the ending inventory balance, resulting in the $35,000 worth of goods being included in the ending inventory balance. Even though the total cost of production was used to figure the cost of goods sold, the $35,000 that needed to be adjusted from the production costs would be subtracted with the ending inventory. The adjustment adjusted itself in the computation using the physical inventory count as the ending inventory balance. For a comparison of the original income statement and the adjusted income statement, the

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