LUNA Inc. pre-audit statement of income for the year ended December 31, 2020 is shown below: Sales P 2,964,000 Cost of goods sold 1,926,000 Gross income 1,038,000 Operating expenses Rent P250,000 Salaries 345,000 Utilities 219,000 Advertising 30,000 Warranty 14,000 Other expenses _ 35,500 893,500 Net income P 144,500 You obtained the following information from the company’s accounting records: Some of Luna's customers pay their orders in advance. At December 31, 2020, orders paid for in advance of shipment totalled P15,000. These have been included in the sales figure. Luna's products are sold with a 30-day money back guarantee. Customers seldom return the products during the year. Luna has not included in the sales figure and in cost of goods sold those products sold within the last 30 days of the current year. The revenue is P98,000 and the cost of the products is P63,700. 3. On July 1, 2020, Luna prepaid its office rent for 18 months. The amount paid, P216,000 was recorded as rent expense. 4. The amount of P120,000 was paid on July 1, 2020 for general advertising to be completed prior to December 31, 2020. Luna's management believes that the advertising will benefit a 2-year period, thus, has decided to charge the costs to the income statement at the rate of P5,000 per month. 5. In prior years, Luna has estimated warranty expense using percentage of sales. Future warranty costs relating to 2020 sales are estimated to amount to 2% of sales. However, during 2020, Luna elected to charge costs to warranty expense as costs were incurred. Luna spent P14,000 during 2020 to repair and replace defective products sold in current and prior years. Required: 1. gross income that should be shown in 2020 statement of income

LUNA Inc. pre-audit statement of income for the year ended December 31, 2020 is shown below: Sales P 2,964,000 Cost of goods sold 1,926,000 Gross income 1,038,000 Operating expenses Rent P250,000 Salaries 345,000 Utilities 219,000 Advertising 30,000 Warranty 14,000 Other expenses _ 35,500 893,500 Net income P 144,500 You obtained the following information from the company’s accounting records: Some of Luna's customers pay their orders in advance. At December 31, 2020, orders paid for in advance of shipment totalled P15,000. These have been included in the sales figure. Luna's products are sold with a 30-day money back guarantee. Customers seldom return the products during the year. Luna has not included in the sales figure and in cost of goods sold those products sold within the last 30 days of the current year. The revenue is P98,000 and the cost of the products is P63,700. 3. On July 1, 2020, Luna prepaid its office rent for 18 months. The amount paid, P216,000 was recorded as rent expense. 4. The amount of P120,000 was paid on July 1, 2020 for general advertising to be completed prior to December 31, 2020. Luna's management believes that the advertising will benefit a 2-year period, thus, has decided to charge the costs to the income statement at the rate of P5,000 per month. 5. In prior years, Luna has estimated warranty expense using percentage of sales. Future warranty costs relating to 2020 sales are estimated to amount to 2% of sales. However, during 2020, Luna elected to charge costs to warranty expense as costs were incurred. Luna spent P14,000 during 2020 to repair and replace defective products sold in current and prior years. Required: 1. gross income that should be shown in 2020 statement of income

Managerial Accounting: The Cornerstone of Business Decision-Making

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ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

Problem 56P: The following selected information is taken from the financial statements of Arnn Company for its...

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You obtained the following information from the company’s accounting records:

Some of Luna's customers pay their orders in advance. At December 31, 2020, orders paid for in advance of shipment totalled P15,000. These have been included in the sales figure.
Luna's products are sold with a 30-day money back guarantee. Customers seldom return the products
during the year. Luna has not included in the sales figure and in cost of goods sold those products sold
within the last 30 days of the current year. The revenue is P98,000 and the cost of the products is
P63,700.
3. On July 1, 2020, Luna prepaid its office rent for 18 months. The amount paid, P216,000 was recorded
as rent expense.
4. The amount of P120,000 was paid on July 1, 2020 for general advertising to be completed prior to
December 31, 2020. Luna's management believes that the advertising will benefit a 2-year period,
thus, has decided to charge the costs to the income statement at the rate of P5,000 per month.
5. In prior years, Luna has estimated warranty expense using percentage of sales. Future warranty costs
relating to 2020 sales are estimated to amount to 2% of sales. However, during 2020, Luna elected to
charge costs to warranty expense as costs were incurred. Luna spent P14,000 during 2020 to repair
and replace defective products sold in current and prior years.

Required:
1. gross income that should be shown in 2020 statement of income

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