Question

Problem 5-3A Computing merchandising amounts and formatting income statements LO C2, P4

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

		Debit			Credit
Merchandise inventory		$	31,000
Other (noninventory) assets			124,000
Total liabilities					$	35,805
K. Valley, Capital						104,641
K. Valley, Withdrawals			8,000
Sales						212,040
Sales discounts			3,244
Sales returns and allowances			13,995
Cost of goods sold			82,768
Sales salaries expense			29,049
Rent expense—Selling space			9,966
Store supplies expense			2,544
Advertising expense			18,023
Office salaries expense			26,505
Rent expense—Office space			2,544
Office supplies expense			848
Totals		$	352,486		$	352,486

On August 31, 2016, merchandise inventory was $25,017. Supplementary records of merchandising activities for the year ended August 31, 2017, reveal the following itemized costs.

Invoice cost of merchandise purchases	$	91,140
Purchases discounts received		1,914
Purchases returns and allowances		4,375
Costs of transportation-in		3,900

  
Required:

1. Compute the company’s net sales for the year.
2. Compute the company’s total cost of merchandise purchased for the year.
3. Prepare a multiple-step income statement that includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.
4. Prepare a single-step income statement that includes these expense categories: cost of goods sold, selling expenses, and general and administrative expenses.

Answer 1

1). Gross Sales =      $ 212040
Less:

Sales discounts	$		3,244
Sales returns and allowances      $			13,995

Net Sales = $194,801

2). Invoice cost of merchandise purchases = $ 91140
Less: Purchases discounts received         = $ 1914
      Purchases returns and allowances     = $ 4375
Add: Cost of transportation =                     $ 3900
Total Cost of merchandise purchased =       $ 88751