Concept introduction:
Cost of goods sold:
Cost of goods sold is the costs incurred for manufacturing or acquiring the products sold by a company in a given year. It includes all the direct costs incurred for the products sold. It can be calculated using the following formulas:
Requirement 1:
To calculate:
Cost of goods sold section of partial income statement at December 31, 2015 for both the companies.
Answer to Problem 5PSA
Cost of goods sold as at December 31, 2015:
For Music World Retail = $3, 25,000
For Wave- Board Manufacturing = $11, 50,000
Explanation of Solution
To calculate cost of goods sold for Music World Retail, following formula would be used:
In the given problem, following information is given:
Beginning merchandise inventory = $2, 00,000
Cost of purchases = $3, 00,000
Ending merchandise inventory = $1, 75,000
Therefore, Cost of goods sold for Music world Retail would be:
Further for calculation of cost of goods sold for Wave- Board Manufacturing, below- mentioned formula would be used:
Following information is given in the given problem:
Beginning finished goods inventory = $5, 00,000
Cost of goods manufactured = $8, 75,000
Ending finished goods inventory = $2, 25,000
Cost of goods sold section of the Income statement at December 31, 2015 for both the companies as asked in the given problem is tabulated below:
Schedule of cost of goods sold for both the companies (Amount in $):
Particulars | Music World Retail | Wave- Board Manufacturing |
Beginning inventory | 2,00,000 | 5,00,000 |
Add: Cost of purchases/ Cost of goods manufactured | 3,00.000 | 8,75,000 |
Goods available for sale | 5,00,000 | 13,75,000 |
Less: Ending inventory | (1,75,000) | (2,25,000) |
Cost of goods sold | 3,25,000 | 11,50,000 |
Thus, Cost of goods sold for Music World Retail is coming out to be $3, 25,000 and that of Wave- Board Manufacturing as $11, 50,000.
Concept introduction:
Cost of goods sold:
Cost of goods sold is the costs incurred for manufacturing or acquiring the products sold by a company in a given year. It includes all the direct costs incurred for the products sold.
Requirement 2:
Memorandum to instructor (a) identifying inventory accounts and (b) describing where each item is reported on income statement and balance sheet of both the companies.
Answer to Problem 5PSA
- Beginning inventory is shown in the Income Statement
- Cost of purchases or cost of goods manufactured is charged to Income Statement. Further, the ending Accounts Payables are listed as Liabilities in the Balance Sheet.
- Ending inventory is shown at credit side as Income in the Income statement and as Current Asset in the Balance Sheet.
Explanation of Solution
Memorandum to instructor To: Instructor
Subject: Memorandum identifying inventory accounts and describing where each item is reported
Details:
All the account heads are listed below:
When the goods are purchased or manufactured, following entry would be passed in the accounting books:
Date | Particulars | L.F. | Debit Amount (in $) | Credit Amount (in $) |
Cost of purchases | XXX | |||
Account Payable | XXX | |||
(Being goods purchased or manufactured) |
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Chapter 1 Solutions
Connect 1 Semester Access Card For Managerial Accounting
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