Question

4 Skipped The income statement shown below was prepared and sent by Jenna Preston, the owner of Preston Gifts, to several of her creditors. The business is a sole proprietorship that sells miscellaneous gifts. An accountant for one of the creditors looked over the income statement and found that it did not conform to generally accepted accounting principles. PRESTON GIFTS Income Statement Year Ended December 31, 2019 Cash Collected from Customers $126,000 Cost of Goods Sold Merchandise Inventory, Jan. 1 $ 36,000 Payments to Suppliers 76,000 112,000 Less: Merchandise Inventory, Dec. 31 24,000 Cost of Goods Sold 88,000 Gross Profit on Sales 38,000 Operating Expenses Salary of Owner 27,000 Salary of Employees 37,200 Payroll Taxes Expense 3,200 Rent Expense 12,200 Advertising Expense 1,700 Utilities Expense 3,300 Total Expenses 84,600 $(46,600) Net Loss Additional information provided by owner: 1. All sales were for cash. 2. The beginning and ending merchandise inventories were valued at their estimated selling price. The actual cost of the ending Inventory is estimated to be $18,000. The actual cost of the beginning inventory is estimated to be $26,000. 3. On December 31, 2019, suppliers of merchandise are owed $17,000. On January 1, 2019, they were owed $17,000. 4. The owner paid herself a salary of $2,250 per month and charged this amount to the Salary of Owner account. 5. A check for $860 to cover the December rent on the owner's personal apartment was issued from the firm's bank account. This amount was charged to Rent Expense. Using the additional information provided by the owner, prepare an income statement in accordance with generally accepted accounting principles. (Input all amounts as positive values except "Net loss" which should be indicated with a minus sign.)

Answer 1

Preston Gifts Income Statement For the year ended December 31, 2019
Sales		$ 126,000
Cost of Goods Sold
Merchandise Inventory, Jan 1	$ 26,000
Add: Purchase of merchandise inventory	76,000
Cost of goods available for sale	102,000
Less: Merchandise inventory, Dec 31	(18,000)
Cost of Goods Sold		84,000
Gross Profit		42,000
Operating Expenses
Salaries Expense	37,200
Rent Expense	11,340
Advertising Expense	1,700
Utilities Expense	3,300
Payroll Tax Expense	3,200
Total Operating Expenses		56,740
Net Income ( Loss )		$ (14,740)