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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Service Organization Income Statement

Healing Hands Massage Hut offers high-end, specialized massages and grooming services, including manicures, pedicures, facials, and full-body massages. Healing Hands is a new startup service organization that generates monthly sales of $200,000. As a startup organization, Healing Hands spends $5,000 a month on advertising in local newspapers and on social media sites. In addition, each month Healing Hands spends $100,000 to pay its team of highly specialized massage therapists, and $10,000 to a technology company (to handle the company’s website, massage appointment scheduling activities, and customer communications). Further, the company incurs a $15,000 monthly expense to rent its hut space in a hip new retail market. Finally, Healing Hands incurs $20,000 of monthly administrative expenses.

Required:

  1. 1. Prepare an income statement for Healing Hands for the past month.
  2. 2. Briefly explain why Healing Hands’ income statement has no line item for cost of goods sold.

1.

To determine

Make an income statement for the previous month.

Explanation

Income Statement:

The statement that shows revenue and expenses incurred over a period of time (usually one year) is called an income statement. It is used for external financial reporting as it helps the outsiders and investors in evaluating the firm’s financial health.

The following table represents the income statement for the previous month:

Company H
Income Statement
For Previous Month
 Amount ($)

2.

To determine

Describe the reason that the company has no line item for the cost of goods sold (COGS).

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