Question

Valley Company’s adjusted trial balance on August 31, 2018, its fiscal year-end, follows.

		Debit			Credit
Merchandise inventory		$	36,500
Other (noninventory) assets			146,000
Total liabilities					$	42,158
Common stock						10,000
Retained earnings						111,098
Dividends			8,000
Sales						249,660
Sales discounts			3,820
Sales returns and allowances			16,478
Cost of goods sold			96,761
Sales salaries expense			34,203
Rent expense—Selling space			11,734
Store supplies expense			2,996
Advertising expense			21,221
Office salaries expense			31,208
Rent expense—Office space			2,996
Office supplies expense			999
Totals		$	412,916		$	412,916

On August 31, 2017, merchandise inventory was $29,456. Supplementary records of merchandising activities for the year ended August 31, 2018, reveal the following itemized costs.

Invoice cost of merchandise purchases	$	107,310
Purchases discounts received		2,254
Purchases returns and allowances		5,151
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

(a) Computation of company net sales for the year

Particulars		amount ($)
Sales		249660
Less Sales return & allownaces	16478
Less sales discount	3820
		-20298
Net sales for the year		229362

(B) Computation of company Total cost of merchandise purchased for the year

Particulars		amount ($)
Purchase		107310
Less Purchase return & allownaces	5151
Less Purchase discount	2254
Add cost of transportaion In	3900
		-3505
Net Total cost of merchandise purchase for the year		103805

(c)

Statement Showing Multisteps Income Statement

Particulars		Amount ( $ )
Sales		249660
Less Sales return & allowances	-16478
Less sales discount	-3820
		-20298
Net Sales		229362
Less Cost of goods sold		-96761
Gross Profit		132601
Selling Expenses :
Sales Salaries Expenses	(a)*34203
Rent expense –selling space	(b)* 11734
Store supplies Expense	(c)2996
Total selling Expenses		-48933
INCOME After selling Expenses	Gross profit-selling Exp	83668
Income from operations		83668
General and administrative expense
Advertising Expense	21221
Office salaries expense	31208
Rent expense—Office space	2996
Office supplies expense	999
Total General and administrative expense	(21221+31208+2996+999)	-56424
Income From Continuing Operation	(83668-56424)	27244
Net profit		27244

(d) single step income statement

Particulars		Amount ( $ )
Sales		249660
Less Sales return & allowances	-16478
Less sales discount	-3820
		-20298
Net Sales		229362
Expenses :
Cost of goods sold		96761
Selling Expenses :
Sales Salaries Expenses	34203
Rent expense –selling space	11734
Store supplies Expense	2996
Total selling Expenses		48933
General and administrative expense :
Advertising Expense	21221
Office salaries expense	31208
Rent expense—Office space	2996
Office supplies expense	999
Total General and administrative expense	(21221+31208+2996+999)	56424
Total expenses	96761+48933+56424	202118
Income ( sales – expenses )	229362-202118	27244
Net Income		27244