Concept explainers
Exercise 14-9 Preparing financial statements for a manufacturer C4 P2
Refer to the data in Exercise 14-8. For each company, prepare (1) an income statement, and (2) the current assets section of the
Income Statement:
Income statement gives a detail representation of the revenues generated and the expenses incurred by the company in a fiscal year thereby concluding the company’s financial status. It is a financial statement which deals with operating and non-operating activities of the company.
Net Income:
Net income is the net revenue earned by the company after taking into account various charges, costs, expenses and deductions. The net income is crucial for the shareholders and gives an idea of profitability level of the company.
Balance Sheet:
The balance sheet concludes the assets invested in by the company as well as reports the liabilities and equity taken up thus showing the economic or financial status of the company.
Current Assets:
It comprises of all the assets which gets converted into cash in less than a year. Example: inventory, other current assets, etcetera.
Operating Expenses:
The costs incurred in the day to day operations to continue with the business though not related directly with the production of goods are termed as operating expenses.
Cost of Goods Sold (COGS):
Cost of goods sold is the total expense or the cost incurred by the business during the process of manufacturing of goods and is directly related to the production. It generally includes the cost of material, labor and other manufacturing support costs.
(1)
To prepare: an income statement for each of the company.
Explanation of Solution
Given info,
G Company:
Sales amounts to $195,030
Selling expenses are of $50,000
Administrative and general expenses are $21,000.
For cost of goods sold of G Company refer to the question 91,030.
P Company:
Sales amount to $290,000.
Selling expenses are $46,000.
Administrative and general expenses are $43,000.
For cost of goods sold of $143,010 refer to question 8E.
Formula to calculate income before tax is,
Income statement for G Company
Income before tax:
G Company | |
Income Statement | |
For the Year Ended 31 December, 2017 | |
Particulars | Amount($) |
Sales | 195,030 |
Less: Cost of goods sold | (91,030) |
Gross profit | 104,000 |
Add: | |
Selling expenses | 50,000 |
Administrative and general expenses | 21,000 |
Income before tax | 33,000 |
Table (1)
The income before tax for G Company amounts to $33,000.
Note: Selling expenses and administrative and general expenses are operating expenses thus taken up to compute income before tax.
Income statement for P Company
Income before tax:
P Company | |
Income Statement | |
For the Year Ended 31 December, 2017 | |
Particulars | Amount ($) |
Sales | 290,010 |
Less: Cost of goods sold | (143,010) |
Gross profit | 147,000 |
Add: | |
Selling expenses | 46,000 |
Administrative and general expenses | 43,000 |
Income before tax | 58,000 |
Table (2)
The income before tax for the P Company is $58,000.
Note: Selling expenses and administrative and general expenses are operating expenses thus taken up to compute income before tax.
(2)
To compute: Current assets for both the company.
Explanation of Solution
Given info,
G Company:
Cash amounts to $20,000.
Receivable accounts to $13,200.
Raw material inventory is $5,300.
Work in progress inventory is $22,000.
Finished goods amount to $17,650.
P Company:
Cash amounts to $15,700.
Receivable accounts to $19,450.
Raw material inventory $7,200.
Work in progress inventory is $16,000.
Finished goods amount to $13,300.
G Company’s current assets
Particulars | Amount($) |
Cash | 20,000 |
Receivable accounts | 13,200 |
Raw material inventory | 5,300 |
Work in progress inventory | 22,000 |
Finished inventory | 17,650 |
Net current assets | 78,150 |
Table (3)
Current assets account to $79,150 for G Company.
P Company’s current assets
Particulars | Amount($) |
Cash | 15,700 |
Receivables accounts | 19,450 |
Raw material inventory | 7,200 |
Work in progress inventory | 16,000 |
Finished inventory | 13,300 |
Net current assets | 71,650 |
Table (4)
P Company’s current assets amount to $71,650.
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Chapter 14 Solutions
FINANCIAL & MANAGERIAL ACCOUNTING
- Ethics in Action Lucas Hunter, president of Simmons Industries Inc., believes that reporting operating cash flow per share on the income statement would be a useful addition to the companys just completed financial statements. The following discussion took place between Lucas Hunter and Simmons' controller, John Jameson, in January, after the close of the fiscal year: Lucas: Ive been reviewing our financial statements for the last year. I am disappointed that our net income per share has dropped by 10% from last year. This won't look good to our shareholders. Is there anything we can do about this? John. What do you means? The past is the past, and the numbers are in. There isnt much that can be done about it Our financial statements were prepared according to generally accepted accounting principles, and I dont see much leeway for significant change at this point. Lucan No, no. Ive not suggesting that we cook the books. But look at the cash flow from operating activities on the statement of cash flows. The cash flow from operating activities has increased by 20%. This is very good newsand. I might add, useful information. The higher cash flow from operating activities will give our creditors comfort. John. Well, the cash flow from operating activities is on the statement of cash flows, so I guess users will be able to see the improved cash flow figures there Lucas: This is true, but somehow I think this information should be given a much higher profile. I don't like this information being buried in the statement of cash flows. You know as well as I do that many users will focus on the income statement Therefore. I think we ought to include an operating cash flow per share number on the face of the income statementsomeplace under the earnings per share number In this way, users will get the complete picture of our operating performance. Yes, our earnings per share dropped this year, but our cash flow from operating activities improved! And all the information is in one place where users can see and compare the figures. What do you think? John I've never really thought about it like that before I guess we could put the operating cash flow per share on the income statement, underneath the earnings per share amount. Users would really benefit from this disclosure. Thanks for the ideaI'll start working on it. Lucas: Glad to be of service. How would you interpret this situation? Is John behaving in an ethical and professional manner?arrow_forwardExercise 1-35 Accounting Concepts OBJECTIVE 06° A list of accounting concepts and related definitions is presented below. Concept Definition 1. Revenue a. Owners claim on the resources of a company 2, Expense b. The difference between revenues and expenses 3. Net income (1055) c. Increase in assets from the sale of goods or services 4, Dividend d. Economic resumes of a company 5. Asset e. Cost of assets consumed in the operation of a business 6, Liability f. Creditors' claims on the resources of a company 7. Stock holders, equity g. Distribution of earnings to stockholders Required: Match each of the concepts with its corresponding definitionarrow_forward
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