PROBLEM 5-5B, Problem 6-2B, Problem 6-3B

PROBLEM 5-5B
 
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

 

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