The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement for the company’sSki Department for a recent quarter is presented below:The Alpine House, Inc.Income Statement—Ski DepartmentFor the Quarter Ended March 31Sales .................................................... $150,000Cost of goods sold ............................... 90,000Gross margin ....................................... 60,000Selling and administrative expenses:Selling expenses .............................. $30,000Administrative expenses .................. 10,000 40,000Net operating income ........................... $ 20,000Skis sell, on the average, for $750 per pair. Variable selling expenses are $50 per pair of skis sold.The remaining selling expenses are fixed. The administrative expenses are 20% variable and 80% fixed.The company does not manufacture its own skis; it purchases them from a supplier for $450 per pair.Required:1. Prepare a contribution format income statement for the quarter.2. For every pair of skis sold during the quarter, what was the contribution toward covering fixed expensesand toward earning profits?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement for the company’s
Ski Department for a recent quarter is presented below:
The Alpine House, Inc.
Income Statement—Ski Department
For the Quarter Ended March 31
Sales .................................................... $150,000
Cost of goods sold ............................... 90,000
Gross margin ....................................... 60,000
Selling and administrative expenses:
Selling expenses .............................. $30,000
Administrative expenses .................. 10,000 40,000
Net operating income ........................... $ 20,000
Skis sell, on the average, for $750 per pair. Variable selling expenses are $50 per pair of skis sold.
The remaining selling expenses are fixed. The administrative expenses are 20% variable and 80% fixed.
The company does not manufacture its own skis; it purchases them from a supplier for $450 per pair.
Required:
1. Prepare a contribution format income statement for the quarter.
2. For every pair of skis sold during the quarter, what was the contribution toward covering fixed expenses
and toward earning profits?
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