Prepare a correct detailed multiple-step income statement. Assume a tax rate of 25%.
WRIGHT COMPANY
Income Statement
For the Month Ended December 31, 2014
Sales Revenues
Account title
Amount
Account title
Amount
Account title
Amount
Net Sales
Cost of goods sold
Gross profit
Amount
Operating Expenses
Account title
Amount
Account title
Amount
Account title
Amount
Account title
Amount
Account title
Amount
Account title
Amount
Account title
Amount
Total operating expenses
Amount
Income from operations
Amount
Other revenues and gains
Account title
Amount
Other expenses and losses
Account title
Amount
Amount (Total)
Income before income taxes
Income tax expense
Net Income
P5-5B
An inexperienced accountant prepared this condensed income statement for
Wright Company, a retail firm that has been in business for a number of years.
WRIGHT COMPANY
Income Statement
For the Year Ended December 31, 2014
Revenues
Net sales $952,000
Other revenues 16,000
968,000
Cost of goods sold 548,000
Gross profit 420,000
Operating expenses
Selling expenses 160,000
Administrative expenses
104,000
264,000
Net earnings $156,000
As an experienced, knowledgeable accountant, you review the statement and determine
the following facts.
1. Net sales consist of sales $972,000, less freight-out on merchandise sold $20,000.
2. Other revenues consist of sales discounts $12,000 and interest revenue $4,000.
3. Selling expenses consist of salespersons’ salaries $88,000; depreciation on equip-
ment $4,000; sales returns and allowances $46,000; advertising $12,000; and sales
commissions $10,000. All compensation should be recorded as Salaries and Wages
Expense.
4. Administrative expenses consist of office salaries $54,000; dividends $14,000; utili-
ties $13,000; interest expense $3,000; and rent expense $20,000, which includes
prepayments totaling $2,000 for the first month of 2015. The utilities represent
utilities paid. At December 31, utility expense of $3,000 has been incurred but not
paid.
Problem 6-2B
(a) Determine the Cost of Goods Available for Sale
Date
Explanation
Units
Unit Cost
Total Cost
Total
(b) Determine the ending inventory and cost of goods sold under each of the assumed cost flow methods. Prove the accuracy of the cost of goods sold under FIFO and LIFO.
FIFO
(1) Ending Inventory
(2) Cost of Goods Sold
Date
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory
Amount
Amount
Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
Proof of Cost of Goods Sold (FIFO)
Date
Units
Unit Cost
Total Cost
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Total
Amount
Total
Amount
LIFO
(1) Ending Inventory
(2) Cost of Goods Sold
Date
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory
Amount
Amount
Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
Proof of Cost of Goods Sold (LIFO)
Date
Units
Unit Cost
Total Cost
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Total
Amount
Total
Amount
AVERAGE COST (Round to the nearest decimal, i.e., $1.01)
(1) Ending Inventory
(2) Cost of Goods Sold
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory
Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
(c) Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?
Enter your answer here
P6-2B
Lifetime Distribution markets classic children’s books. At the beginning of June, Lifetime had in beginning inventory 1,200 books with a unit cost of $3. During June, Life- time made the following purchases of books.
June 3 4,000 @ $3 June 29 4,000 @ $6
June 18 7,500 @ $5
During June, 10,500 books were sold. Lifetime uses a periodic inventory system.
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods. (Note: For average-cost, round cost per unit to three decimal places.)
(c) Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?
Problem 6-3B
(a) Determine the Cost of Goods Available for Sale
Date
Explanation
Units
Unit Cost
Total Cost
Total
(b) Determine the ending inventory and the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO and average-cost). Prove the accuracy of the cost of goods sold under each method.
FIFO
(1) Ending Inventory
(2) Cost of Goods Sold
Date
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory
Amount
Amount
Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
Proof of Cost of Goods Sold (FIFO)
Date
Units
Unit Cost
Total Cost
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Total
Amount
Total
Amount
LIFO
(1) Ending Inventory
(2) Cost of Goods Sold
Date
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory
Amount
Amount
Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
Proof of Cost of Goods Sold (LIFO)
Date
Units
Unit Cost
Total Cost
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Total
Amount
Total
Amount
AVERAGE COST (Round to the nearest decimal, i.e., $1.01)
(1) Ending Inventory
(2) Cost of Goods Sold
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory
Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
(c) Which cost flow method results in the lowest inventory amount for the balance sheet? The lowest cost of goods sold for the income statement?
Enter your answer here
P6-3B
Smythe Company Inc. had a beginning inventory of 200 units of Product ERV at a cost of $6 per unit. During the year, purchases were:
Jan 24 800 units at $7 Aug. 19 600 units at $9
Apr 12 400 units at $8 Nov. 30 350 units at $10
Smythe Company uses a periodic inventory system. Sales totaled 1,900 units.
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine the ending inventory and the cost of goods sold under each of the assumed cost
flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold
under the FIFO and LIFO methods. (Round average unit cost to three decimal places.)
(c) Which cost flow method results in the lowest inventory amount for the balance sheet?
The lowest cost of goods sold for the income statement?
