Question

Valley Company’s adjusted trial balance on August 31, 2017, its fiscal year-end, follows.

		Debit			Credit
Merchandise inventory		$	37,500
Other (noninventory) assets			150,000
Total liabilities					$	43,313
Common stock						10,000
Retained earnings						114,091
Dividends			8,000
Sales						256,500
Sales discounts			3,924
Sales returns and allowances			16,929
Cost of goods sold			99,306
Sales salaries expense			35,141
Rent expense—Selling space			12,056
Store supplies expense			3,078
Advertising expense			21,803
Office salaries expense			32,063
Rent expense—Office space			3,078
Office supplies expense			1,026
Totals		$	423,904		$	423,904

On August 31, 2016, merchandise inventory was $30,263. Supplementary records of merchandising activities for the year ended August 31, 2017, reveal the following itemized costs.

Invoice cost of merchandise purchases	$	110,250
Purchases discounts received		2,315
Purchases returns and allowances		5,292
Costs of transportation-in		3,900

  

1. Compute the company’s net sales for the year.
2. Prepare a multiple-step income statement that includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.

Answer 1

1
Sales	256500
Less: Sales discounts	(3924)
Sales returns and allowances	(16929)
Net sales	235647
2
VALLEY COMPANY
Income Statement
For Year Ended August 31, 2017
Sales		256,500
Less: Sales discounts	3,924
Less: Sales returns and allowances	16,929	20853
Net sales		235,647
Cost of goods sold		99,306
Gross profit		136,341
Expense
Selling expenses
Sales salaries expense	35,141
Rent expense - Selling space	12,056
Store supplies expense	3,078
Advertising expense	21,803
Total selling expenses		72,078
General and administrative expenses
Office salaries expense	32,063
Rent expense - Office space	3,078
Office supplies expense	1026
Total general and administrative expenses		36,167
Total expenses		108,245
Net income		28,096