Question

The following accounts and their current balances appear in the ledger of Cerelat Co. at the end of its fiscal year, June 30. Cerelat uses a periodic inventory system.

Cash		$450,000		Sales		1,600,000
Accounts Receivable		650,000		Purchases		850,000
Inventory		850,000		Purchases Returns and Allowances		7,000
Estimated Returns Inventory		15,000		Purchases Discounts		3,500
Office Supplies		8,000		Freight In		16,000
Prepaid Insurance		8,500		Sales Salaries Expense		210,000
Office Equipment		900,000		Advertising Expense		100,000
Accumulated Depreciation-Office Equipment		600,000		Depreciation Expense-Store Equipment		48,000
Store Equipment		600,000		Delivery Expense		22,000
Accumulated Depreciation-Store Equipment		280,000		Office Salaries Expense		130,000
Accounts Payable		86,000		Rent Expense		60,000
Salaries Payable		45,000		Depreciation Expense-Office Equipment		40,000
Customer Refunds Payable		4,000		Insurance Expense		11,000
Notes Payable (long-term)		100,000		Office Supplies Expense		9,000
Common Stock		600,000		Miscellaneous Administrative Expense		12,000
Retained Earnings		1,704,000		Interest Expense		15,000
Dividends		25,000

A physical inventory at the end of June was $882,000. Estimated Returns Inventory is expected to increase to $16,500. Prepare a multiple-step income statement for Cerelat Co. showing how cost of goods sold was calculated for the year ended June 30.

Cerelat Co.
Income Statement
For Period Ended June 30
Sales			$
Cost of goods sold:
Advertising expense		$
Cost of merchandise purchased:
	$
	$
Total cost of merchandise purchased
		$
		$
			$
Operating expenses:
Selling expenses:
	$
Total selling expenses		$
Administrative expenses:
	$
Total administrative expenses
Total operating expenses
			$
Other revenue and expense:
			$

Answer 1

Cerelat Co.
Income Statement
For Period Ended June 30
	Amount	Amount
Sales		$1,600,000
Cost of Goods Sold:		$807,000
Gross Profit		$793,000
Operating Expense
Selling Expenses
Advertising Expense	$100,000
Sales Salaries Expense	$210,000
Depreciation Expense-Store Equipment	$48,000
Delivery Expense	$22,000	$380,000
Administrative Expenses
Depreciation Expense-Office Equipment	$40,000
Office Salaries Expense	$130,000
Rent Expense	$60,000
Insurance Expense	$11,000
Office Supplies Expense	$9,000
Miscellaneous Administrative Expense	$12,000	$262,000
Total Operating Expense		$642,000
Other Revenue or Expenses
Interest Expense	$(15,000)
Dividends	$25,000	$10,000
Net Income		$161,000

Computation of Cost of Goods Sold (COGS)
Particulars	Amount
Inventory at begining of period	$850,000
Add:
Purchases	$850,000
Freight In	$16,000
	$1,716,000
Less:
Estimated Returns Inventory (Updated)	$16,500
Purchase returns and allowances	$7,000
Purchase Discounts	$3,500
Inventory at end of period	$882,000
Cost of Goods Sold	$807,000