1.
Provide supporting schedules for cost of goods sold, selling expenses, general and administrative expenses, and
1.
Explanation of Solution
Cost of goods sold: Cost of goods sold is the total of all the expenses incurred by a company to sell the goods during the given period.
Schedule of cost of goods sold is a report which reports cost of goods sold in a detailed manner.
Provide the schedule of cost of goods sold:
Company S | ||
For the Year Ended December 31, 2016 | ||
Schedule 1: Cost of goods sold | ||
Particulars | Amount | Amount |
($) | ($) | |
Beginning inventory | $37,800 | |
Add: Purchases | $173,000 | |
Transportation in | $13,500 | |
Cost of purchases | $186,500 | |
Less: Purchase discount taken | ($4,100) | |
Purchases returns and allowances | ($6,200) | |
Net purchases | $176,200 | |
Cost of goods available for sale | $214,000 | |
Less: Ending inventory | ($34,100) | |
Cost of goods sold | $179,900 |
Table (1)
Provide the schedule of selling expenses:
Company S | ||
For the Year Ended December 31, 2016 | ||
Schedule 2: Selling Expenses | ||
Particulars | Amount ($) | Amount ($) |
Selling expenses: | ||
Sales commission salaries | $18,200 | |
Sales supplies used | $5,600 | |
Delivery expense | $7,700 | |
Promotion and advertising expense | $17,000 | |
Total selling expenses | $48,500 |
Table (2)
Provide the schedule of general and administrative expenses:
Company S | ||
For the Year Ended December 31, 2016 | ||
Schedule 3: General and Administrative Expenses | ||
Particulars | Amount ($) | Amount ($) |
General and Administrative Expenses: | ||
| $2,700 | |
Office supplies expense | $1,400 | |
Insurance and property tax expense | $8,500 | |
Office and administrative salaries expenses | $32,000 | |
Total General and Administrative Expenses | $44,600 |
Table (3)
Provide the schedule of depreciation expenses:
Company S | ||
For the Year Ended December 31, 2016 | ||
Schedule 4: Depreciation Expenses | ||
Particulars | Amount ($) | Amount ($) |
Depreciation Expenses: | ||
Building and office equipment | $14,500 | |
Sales equipment | $9,600 | |
Total depreciation expense | $24,100 |
Table (4)
2.
Provide a multi-step income statement for the year 2016.
2.
Explanation of Solution
Multi step income statement: A multiple step income statement refers to the income statement that shows the operating and non-operating activities of the business under separate head. In different steps of the multi-step income statement, principal operating activities are reported that starts from the record of sales revenue with all contra sales revenue account like sales returns, allowances and sales discounts.
Prepare a multi-step income statement for the year 2016.
Company S | ||
Income Statement | ||
For the Year Ended December 31, 2016 | ||
Particulars | Amount | Amount |
($) | ($) | |
Sales | $328,600 | |
Less: Sales discount taken | ($4,900) | |
Net sales | $323,700 | |
Less: Cost of goods sold | ($179,900) | |
Gross profit | $143,800 | |
Operating expenses: | ||
Selling expenses | ($48,500) | |
General and administrative expenses | ($44,600) | |
Depreciation | ($24,100) | |
Total operating expense | ($117,200) | |
Operating income | $26,600 | |
Other item: | ||
Rent revenue | $6,900 | |
Interest expense | ($3,700) | |
Loss on sale of office equipment | ($5,000) | |
Loss due to tornado | ($12,000) | |
Pretax income from continuing operations | $12,800 | |
Less: Income tax expense (1) | ($3,840) | |
Income from continuing operation | $8,960 | |
Result from discontinued operations: | ||
Loss from operation of discontinued Division R (2) | ($6,090) | |
Gain on sale of Division R (3) | $7,000 | |
Income from discontinuing operation | $910 | |
Net income | $9,870 | |
Components of income | Earnings per common share | |
Income from continuing operation (5) | $1.12 | |
Result from discontinuing operation (6) | $0.11 | |
Net income | $1.23 |
Table (5)
Working note (1):
Calculate an amount of income taxes:
Working note (2):
Calculate loss from operation of discontinuing Division R:
Working note (3):
Calculate gain on sale of Division R:
Working note (4):
Calculate the number of common shares:
Working note (5):
Calculate income from continuing operation earnings per common share:
Working note (6):
Calculate income from discontinuing operation earnings per common share:
3.
Provide a retained earnings statement for the year 2016.
3.
Explanation of Solution
Statement of Retained Earnings: Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.
Provide a retained earnings statement for the year 2016.
Company S | ||
Statement of retained earning | ||
For the Year Ended December 31, 2016 | ||
Particulars | Amount($) | Amount($) |
Retained earnings, January 1, 2016 | $83,700 | |
Add: Net income | $9,870 | |
Subtotal | $93,570 | |
Less: Cash dividends declared | ($4,800) | |
Retained earnings, December 31, 2016 | $88,770 |
Table (6)
4.
Evaluate the return on common equity if it was 10% last year for Company S.
4.
Explanation of Solution
Return on equity ratio: It is a profitability ratio that measures the profit generating ability of the company from the invested money of the shareholders. The formula to calculate the return on equity is as follows:
Evaluate the return on common equity for 2016:
Thus, the return on common equity is 6.58%.
During 2018, the return on common equity is 10%. This return has been decreased by 3% in the year 2016. The decrease in return on common equity is due to discontinue in the segment due to the tornado which incurred severe loss to the company.
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Chapter 5 Solutions
Intermediate Accounting: Reporting and Analysis
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