Question

Departmental Income Statement
Elgin Flooring Company sells floor coverings through two departments, carpeting and hard covering (tile and linoleum). Operating information for 2019 appears below.

				Carpeting Department	Hard Covering Department
Inventory, January 1, 2019				$60,000	$26,000
Inventory, December 31, 2019				50,000	30,000
Net sales				500,000	800,000
Purchases				300,000	560,000
Purchases returns				28,000	8,000
Purchases discounts				16,000	4,000
Transporation in				18,000	14,000
Traceable departmental expenses				108,000	56,000

Common operating expenses of the firm were $225,000.

a. Prepare a departmental income statement showing departmental contribution to common expenses and net income of the firm. Assume an overall effective income tax rate of 20%. Elgin uses a periodic inventory system.

Do not use negative signs with any of your answers below.

Elgin Flooring Company Departmental Income Statement For the Year Ended December 31, 2019
				Carpeting Department	Hard Covering Department	Total
Net sales				Answer	Answer	Answer
Cost of goods sold:
Inventory, January 1, 2019				Answer	Answer	Answer
Purchases				Answer	Answer	Answer
Purchases returns				Answer	Answer	Answer
Purchases discounts				Answer	Answer	Answer
Transportation in				Answer	Answer	Answer
Cost of goods available for sale				Answer	Answer	Answer
Inventory, December 31, 2019				Answer	Answer	Answer
Cost of goods sold				Answer	Answer	Answer
Gross Profit				Answer	Answer	Answer
Traceable department expenses				Answer	Answer	Answer
Contribution to common expenses				Answer	Answer	Answer
Common expenses						Answer
Income before tax						Answer
Income tax expense						Answer
Net income						Answer

b. Calculate the gross profit percentage for each department.

Round to the nearest whole percentage.

Carpeting department

Answer%

Hard Covering department

Answer%

c. If the common expenses were allocated 40% to the carpeting department and 60% to the hard covering department, what would the net income be for each department?

Do not use negative signs with any of your answers below.

				Carpeting Department	Hard Covering Department	Total
Contribution to common expenses				Answer	Answer	Answer
Common expenses				Answer	Answer	Answer
Income before tax				Answer	Answer	Answer
Income tax expense				Answer	Answer	Answer
Net income				Answer	Answer	Answer

Answer 1

ANSWER

Departmental Income Statement
For the Year Ended December 31, 2019
	Carpeting Department	Hard Covering Department	Total
Particular	Amount	Amount	Amount
Net sales (a)	$500,000	$800,000	$1,300,000
Cost of goods sold:			$0
Inventory, January 1, 2019	$60,000	$26,000	$86,000
Purchases	$300,000	$560,000	$860,000
Purchases returns	-$28,000	-$8,000	-$36,000
Purchases discounts	-$16,000	-$4,000	-$20,000
Transportation in	$18,000	$14,000	$32,000
Cost of goods available for sale	$334,000	$588,000	$922,000
Inventory, December 31, 2019	-$50,000	-$30,000	-$80,000
Cost of goods sold (b)	$284,000	$558,000	$842,000
Gross Profit (a-b)	$216,000	$242,000	$458,000
Less: Traceable department expenses	$108,000	$56,000	$164,000
Contribution to common expenses	$108,000	$186,000	$294,000
Common expenses			-$225,000
Income before tax			$69,000
Less: Income tax expense @20%			-$13,800
Net income			$55,200

Computation of GP Ratio
Net sales (a)	$500,000	$800,000
Gross Profit (b)	$216,000	$242,000
Gross Profit Percentage (b/a)	43%	30%

Part-3
	Carpeting Department	Hard Covering Department	Total
Contribution to common expenses	$108,000	$186,000	$294,000
Common expenses	-90000	-135000	-225000
	(225000*40%)	(225000*60%)
Income before tax	$18,000	$51,000	$69,000
Income tax expense @ 20%	-$3,600	-$10,200	-$13,800
Net income	$14,400	$40,800	$55,200

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