Chapter 5, Problem 3APSA

To determine

Concept Introduction:

Net Sales:

The net sales can be defined as sales after subtracting sales discounts and sales returns and allowances. The net sales are the sales which actually took place. The net sales are calculated as −

  $\text{Net Sales = Sales – Sales Discounts – Sales returns and allowances}$

To compute:

The company's net sales

Answer to Problem 3APSA

Net Sales = $ 211,350

Explanation of Solution

The net sales are calculated as −

Given,

• Sales = $ 225,600
• Sales discounts = $ 2,250
• Sales returns and allowances = $ 12,000

  $\begin{array}{l}NetSales=Sales–SalesDiscounts–Salesreturnsandallowances\hfill \\ NetSales=\$225,600-\$2,250-\$12,000\hfill \\ NetSales=\$211,350\hfill \end{array}$

To determine

Concept Introduction:

Total cost of Merchandise:

Cost of merchandise can be defined as the total cost incurred to purchase the goods. The cost of merchandise is calculated after subtracting purchase discounts received and purchases returns and allowances from Invoice cost of merchandise purchase and adding cost of transportation to it.

  $\begin{array}{l}\text{Total cost of merchandise = Invoice cost of merchandise – }\left(\begin{array}{l}\text{Purchase Discounts received}\\ \text{+ Purchase returns and allowances}\end{array}\right)\\ \text{ + Cost of transportation-in}\end{array}$

To Compute:

The Company's total cost of merchandise

Answer to Problem 3APSA

The Company's total cost of merchandise = $ 90,100

Explanation of Solution

The Company's total cost of merchandise is calculated as under −

Given,

• Invoice cost of merchandise purchase = $ 92,000
• Purchase Discounts received = $ 2,000
• Purchase returns and allowances = $4,500
• Cost of transportation-in = $ 4,600

  $\begin{array}{l}\text{Total cost of merchandise = Invoice cost of merchandise – }\left(\begin{array}{l}\text{Purchase Discounts received}\\ \text{+ Purchase returns and allowances}\end{array}\right)\\ \text{ + Cost of transportation-in}\end{array}$

  $\begin{array}{l}\text{Total cost of merchandise = \$ 92,000 - \$ 2,000 - \$ 4,500 + \$ 4,600}\hfill \\ \text{Total cost of merchandise = \$ 90,100}\hfill \end{array}$

To determine

Concept Introduction:

Income Statement:

The income statement can be explained as the statement giving details about the revenues, incomes, gains and expenses, losses etc. The income statement is prepared to determine net income or loss of the business by listing all the revenues, gains and expenses and losses of the business. It can be single step income statement as well multi step income statement.

To prepare:

Multi step income statement that includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses

Answer to Problem 3APSA

Valley Company
Income Statement
For the year Ended Aug 31, 201X
Sales		2,25,600
Less:
Sales Discounts	2250
Sales returns and allowances	12000	14250
Net Sales		2,11,350
Less: Cost of goods sold		74500
Gross profit		1,36,850
Expenses
Selling expenses
Sales Salaries Expenses	32000
Rent expense - Selling space	8000
Store supplies expenses	1500
Advertising Expense	13000
Total selling expenses		54500
General and administrative expenses
Office salaries expense	28500
Rent expense - Office space	3600
Office Supplies Expense	400
Total general and administrative expenses		32500
Total Expenses		87000
Net Income		49,850

Explanation of Solution

The above income statement is prepared as under −

Given,

• Sales = $ 225,600
• Sales discounts = $ 2,250
• Sales returns and allowances = $ 12,000
• Cost of goods sold = $ 74,500
• Sales Salaries Expenses = $ 32,000
• Rent expense - Selling space = $ 8,000
• Store supplies expenses = $ 1,500
• Advertising Expense = $ 13,000
• Office salaries expense = $ 28,500
• Rent expense - Office space = $ 3,600
• Office Supplies Expense = $ 400

  $\begin{array}{l}\text{Net Sales = Sales – Sales Discounts – Sales returns and allowances}\hfill \\ \text{Net Sales = \$ 225,600 - \$ 2,250 - \$ 12,000}\hfill \\ \text{Net Sales = \$ 211,350}\hfill \end{array}$

  $\begin{array}{l}\text{Gross Profit = Net Sales – Cost of goods sold}\hfill \\ \text{Gross Profit = \$ 211,350 - \$ 74500}\hfill \\ \text{Gross Profit = \$ 136,850}\hfill \end{array}$

  $\begin{array}{l}\text{Total selling expenses = }\left(\begin{array}{l}\text{Sales Salaries Expenses +Rent expense - Selling space}\\ \text{ + Store supplies expenses + Advertising Expense}\end{array}\right)\hfill \\ \text{Total selling expenses = \$ 32,000 + \$ 8000 + \$ 1500 + \$ 13000}\hfill \\ \text{Total selling expenses = \$ 54,500}\hfill \end{array}$

  $\begin{array}{l}\begin{array}{l}\text{Total general and administrative expenses = }\left(\begin{array}{l}\text{Office salaries expense + Rent expense - Office space }\\ \text{+ Office Supplies Expense}\end{array}\right)\hfill \\ \text{Total general and administrative expenses = \$ 28500 + \$ 3600 + \$ 400}\hfill \end{array}\\ \text{Total general and administrative expenses = \$ 32,500}\end{array}$

  $\begin{array}{l}\text{Total Expenses = Total selling expenses + Total general and administrative expenses}\hfill \\ \text{Total Expenses = \$ 54,500 + \$ 32,500}\hfill \\ \text{Total Expenses = \$ 87,000}\hfill \\ \text{Net Income = Gross profit – Total expenses}\hfill \\ \text{Net Income = \$ 136,850 - \$ 87,000}\hfill \\ \text{Net Income = \$ 49,850}\hfill \end{array}$

To determine

Income Statement:

The income statement can be explained as the statement giving details about the revenues, incomes, gains and expenses, losses etc. The income statement is prepared to determine net income or loss of the business by listing all the revenues, gains and expenses and losses of the business. It can be single step income statement as well multi step income statement.

To prepare:

Single-step Income statement that includes categories like net sales, cost of goods sold, selling expenses, and general and administrative expenses

Answer to Problem 3APSA

Valley Company
Income Statement
For the year Ended Aug 31, 201
Net Sales		211,350
Less:
Expenses
Cost of goods sold	74500
Total selling expenses	54500
Total general and administrative expenses	32500
Total expenses		161,500
Net Income		49,850

Explanation of Solution

The single step income statement is prepared as under −

Given,

• Sales = $ 225,600
• Sales discounts = $ 2,250
• Sales returns and allowances = $ 12,000
• Cost of goods sold = $ 74,500
• Sales Salaries Expenses = $ 32,000
• Rent expense - Selling space = $ 8,000
• Store supplies expenses = $ 1,500
• Advertising Expense = $ 13,000
• Office salaries expense = $ 28,500
• Rent expense - Office space = $ 3,600
• Office Supplies Expense = $ 400

The net sales were calculated −

  $\begin{array}{l}\text{Net Sales = Sales – Sales Discounts – Sales returns and allowances}\hfill \\ \text{Net Sales = \$ 225,600 - \$ 2,250 - \$ 12,000}\hfill \\ \text{Net Sales = \$ 211,350}\hfill \end{array}$

  $\begin{array}{l}\begin{array}{l}\text{Total expenses = (Cost of Goods sold + Total selling expenses}\\ \text{ + Total general and administrative expenses)}\end{array}\hfill \\ \text{Total expenses = \$ 74,500 + \$ 54,500 + \$ 32,500}\hfill \\ \text{Total expenses = \$ 161,500}\hfill \\ \text{Net Income = Net Sales – Total Expenses}\hfill \\ \text{Net Income = \$ 211,350 - \$ 161,500}\hfill \\ \text{Net Income = \$ 49,850}\hfill \end{array}$