Homework Answers
ANSWER
| Income Statement | ||
| Sales Revenue | 400,000 | |
| Less: Cost of goods sold | ||
| Opening Inventory $ 120,000 | ||
| Add: Purchase during the year $ 350,000 | ||
| Less: Closing inventory $ 185,000 | 285,000 | |
| Gross Margin | 115,000 | |
| Less: Selling and Admin expense | ||
| Allowance for bad debts (50,000-45,000) | 5,000 | |
| Operating income before tax | 110,000 | |
| Less: Tax rate @40% (110,000 *40%) | 44,000 | |
| Operating income after tax | 66,000 | |
| Note: Closing inventory is valued as follows: | ||
| Cost $200,000 OR | ||
| Net replacement cost $ 115,000 | ||
| Whichever is less | ||
| Therefore, closing stock is valued at $115,000 | ||
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