Question

Valley Company’s adjusted trial balance on August 31, its fiscal year-end, follows. It categorizes the following accounts as selling expenses: sales salaries expense, rent expense—selling space, store supplies expense, and advertising expense. It categorizes the remaining expenses as general and administrative.

		Debit			Credit
Merchandise inventory (ending)		$	42,500
Other (noninventory) assets			170,000
Total liabilities					$	49,088
Common stock						57,210
Retained earnings						81,838
Dividends			8,000
Sales						290,700
Sales discounts			4,448
Sales returns and allowances			19,186
Cost of goods sold			112,026
Sales salaries expense			39,826
Rent expense—Selling space			13,663
Store supplies expense			3,488
Advertising expense			24,710
Office salaries expense			36,338
Rent expense—Office space			3,488
Office supplies expense			1,163
Totals		$	478,836		$	478,836

Beginning merchandise inventory was $34,298. Supplementary records of merchandising activities for the year ended August 31 reveal the following itemized costs.

Invoice cost of merchandise purchases	$	124,950
Purchases discounts received		2,624
Purchases returns and allowances		5,998
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

Please refer to the below table for the required answers

Table:

1) Calculates the net sales for the year

2) Computes the company’s total cost of merchandise purchased for the year.

3) Multiple Step income statement

4) Single-step income statement

Table 1	Computation of net sales for the year
	Particulars	Amount
	Sales	290,700
Less	Sales discounts	4448
Less	Sales returns and allowances	19186
	Net Sales	267,066

Table 2	Calculation of the total cost of merchandise purchased for the year
	Particulars	Amount
	Closing merchandise inventory	42,500
Less	Opening Merchandise inventory	34,298
	Balancing figure	8,202
Add	Cost of Goods Sold	112,026
	Purchase of inventory for the year	120,228

Table 3	Multiple-step income statement
	Particulars	Amount	Amount
	Sales		290,700
Less:	Sales discounts	4,448
Less:	Sales returns and allowances	19,186	23,634
	Net Sales		267,066
Less:	Cost of goods sold		112,026
	Gross profit		155,040
	Selling Expenses
Less:	Sales salaries expense	39,826
Less:	Rent expense—Selling space	13,663
Less:	Store supplies expense	3,488
Less:	Advertising expense	24,710	81,687
	General and Administrative Expenses
Less:	Office salaries expense	36,338
Less:	Rent expense—Office space	3,488
Less:	Office supplies expense	1,163	40,989
	Operating Income		32,364

Table 4: Single step income statement
Particulars	Amount
Revenue & Gains
Sales	290,700
Expenses & Losses
Sales discounts	4,448
Sales returns and allowances	19,186
Cost of goods sold	112,026
Sales salaries expense	39826
Rent expense—Selling space	13663
Store supplies expense	3488
Advertising expense	24710
Office salaries expense	36,338
Rent expense—Office space	3,488
Office supplies expense	1,163
Total Expenses & Losses	258,336
Net Income	32,364