Concept explainers
Exercise 14-9 Preparing financial statements for a manufacturer C4 P2
Refer to the data in Exercise 14-8. For each company, prepare (1) an income statement, and (2) the current assets section of the
Income Statement:
Income statement gives a detail representation of the revenues generated and the expenses incurred by the company in a fiscal year thereby concluding the company’s financial status. It is a financial statement which deals with operating and non-operating activities of the company.
Net Income:
Net income is the net revenue earned by the company after taking into account various charges, costs, expenses and deductions. The net income is crucial for the shareholders and gives an idea of profitability level of the company.
Balance Sheet:
The balance sheet concludes the assets invested in by the company as well as reports the liabilities and equity taken up thus showing the economic or financial status of the company.
Current Assets:
It comprises of all the assets which gets converted into cash in less than a year. Example: inventory, other current assets, etcetera.
Operating Expenses:
The costs incurred in the day to day operations to continue with the business though not related directly with the production of goods are termed as operating expenses.
Cost of Goods Sold (COGS):
Cost of goods sold is the total expense or the cost incurred by the business during the process of manufacturing of goods and is directly related to the production. It generally includes the cost of material, labor and other manufacturing support costs.
(1)
To prepare: an income statement for each of the company.
Explanation of Solution
Given info,
G Company:
Sales amounts to $195,030
Selling expenses are of $50,000
Administrative and general expenses are $21,000.
For cost of goods sold of G Company refer to the question 91,030.
P Company:
Sales amount to $290,000.
Selling expenses are $46,000.
Administrative and general expenses are $43,000.
For cost of goods sold of $143,010 refer to question 8E.
Formula to calculate income before tax is,
Income statement for G Company
Income before tax:
G Company | |
Income Statement | |
For the Year Ended 31 December, 2017 | |
Particulars | Amount($) |
Sales | 195,030 |
Less: Cost of goods sold | (91,030) |
Gross profit | 104,000 |
Add: | |
Selling expenses | 50,000 |
Administrative and general expenses | 21,000 |
Income before tax | 33,000 |
Table (1)
The income before tax for G Company amounts to $33,000.
Note: Selling expenses and administrative and general expenses are operating expenses thus taken up to compute income before tax.
Income statement for P Company
Income before tax:
P Company | |
Income Statement | |
For the Year Ended 31 December, 2017 | |
Particulars | Amount ($) |
Sales | 290,010 |
Less: Cost of goods sold | (143,010) |
Gross profit | 147,000 |
Add: | |
Selling expenses | 46,000 |
Administrative and general expenses | 43,000 |
Income before tax | 58,000 |
Table (2)
The income before tax for the P Company is $58,000.
Note: Selling expenses and administrative and general expenses are operating expenses thus taken up to compute income before tax.
(2)
To compute: Current assets for both the company.
Explanation of Solution
Given info,
G Company:
Cash amounts to $20,000.
Receivable accounts to $13,200.
Raw material inventory is $5,300.
Work in progress inventory is $22,000.
Finished goods amount to $17,650.
P Company:
Cash amounts to $15,700.
Receivable accounts to $19,450.
Raw material inventory $7,200.
Work in progress inventory is $16,000.
Finished goods amount to $13,300.
G Company’s current assets
Particulars | Amount($) |
Cash | 20,000 |
Receivable accounts | 13,200 |
Raw material inventory | 5,300 |
Work in progress inventory | 22,000 |
Finished inventory | 17,650 |
Net current assets | 78,150 |
Table (3)
Current assets account to $79,150 for G Company.
P Company’s current assets
Particulars | Amount($) |
Cash | 15,700 |
Receivables accounts | 19,450 |
Raw material inventory | 7,200 |
Work in progress inventory | 16,000 |
Finished inventory | 13,300 |
Net current assets | 71,650 |
Table (4)
P Company’s current assets amount to $71,650.
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Chapter 1 Solutions
Managerial Accounting
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- A product cost is Oa. shown with operating expenses on the income statement Ob. shown with current liabilities on the balance sheet Oc. expensed in the period in which the product is manufactured Od. expensed in the period the product is soldarrow_forwardReturn on assets The financial statements of The Hershey Company (HSY) are shown in Exhibits 6 through 9 of this chapter. Based upon these statements, answer the following questions. The percent that a company adds to its cost of sales to determine the selling price is called a markup. That is Hershey’s markup percent? Round to one decimal place.arrow_forwardOrganizational charts _____. A. list the salaries of all employees B. outline the strategic goals of the organization C. show the structure of an organization D. help management measure financial performancearrow_forward
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