Question

Super Rich Business Person (SRBP) is opening a new merchandising company, COMPANY 2. SRBP owns several companies, but COMPANY 1 is very similar to COMPANY 2 (market size and characteristics, product types, expected demand/supply, etc.). Because the two companies are so similar, SRBP is going to use COMPANY 1 as a source of estimated prices and costs for COMPANY 2. COMPANY 1 has been in operation for seven years, and it's most recent Income Statement is presented below. Note that this income statement has been prepared especially for this purpose. SRBP's accountant prepared it to show both cost function AND cost behavior. COMPANY 1 Income Statement For the year ended 20X6 Total Units-2,500) Sales, Gross Sales Discounts Sales Returns & Allowances Sales, Net Cost of Goods Sold (variable) Gross Profit Variable Selling Expenses Variable Administrative Expenses Fixed Selling & Administrative Expenses 43.250 Net Income 275,000 (2,000) (5,500 500 267,500 (165,000) 102,500 (19,250) (13,750) (76.250) 26,250

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you Event Account Credit Adjusted Trial Balance: Cash Building and Equipment Account 100,000 $ 51,607 $175,000 Common Stock (To record issue of common stock) Accounts Receivable Inventory Building and Equipment Accumulated Depreciation Accounts Payable Salaries Payable Common Stock Inventory $100,000 Accounts Payable 77,470 58,150 $ 6,250 $175,000 $349,250 (To record purchase of inventory) Inventory (To record payment of freight in) Prepaid Insurance To record payment of insurance) 6,350 es Sales discount Sales return and Allowance $ Cost of Goods sold Depreciation Expense Freight out expense Insurance Expense Professional Expense Salaries Expense Supplies Expense Advertising Expense 7,370 $223,278 $ 26,563 S 20,000 12,500 $ 26,250 To record payment of supplies) Accounts Receivable $603,650 $603,650 To record sale on account Cost of Goods sold Inventory 49,500 (To record cost of goods sold) Freight out expense (To record shipping cost) Closing Entries S 81,675 $349,250 Sales discount $349,250 Income Summary To close revenue accounts) Accounts Receivable To record receipt of payment) Accounts Payable To record payment) Income Summarv $329,419 S 2,708 $223,278 $ 26,563 77,470 Sales discount Sales return and Allowance Cost of Goods sold Depreciation Expense Freight out expense Insurance Expense Professional Expense Salaries Expense Supplies Expense Advertising Expense 77,470 Inventory $117,852 Accounts Payable To record purchase of inventory) $117,852 Inventory $ 26,250 Cash (To record payment of freight in) To close expense account) Accounts Receivable $132,000 Income Summary 19,831 $132,000 $ 19,831 Retained Earning (To close income summary) es (To record sale on account)

79,200 12 12 Cost of Goods sold S 79,200 To record cost of goods sold) Freight out expense To record shipping cost Supplies To record payment of supples) 9,235 13 13 S 9,235 14 10,000 14 10,000 Sales return and Allawance $ 1,540 Accounts Receivable $1,540 To record sale on account-return) Invertory $924 Cost of Goods sold $924 To record cost of goods sold-return) Salaries Expense To record payment of salaries) Cash $ 6,250 16 16 6,250 129,155 S1,305 17 Sales discount Accounts Receivable To record receipt of payment) Accounts Receivable 130.460 18 S 57,750 Sales To record sale on account) S57,750 18 Cost of Goods sold S 52,800 52,800 To record cost of goods sold) $6,163 19 19 Freight out expense S 6,163 Cash To record shipping cost) 20 Accounts Payable 117,852 117,852 Cash To record poyment) Sales return and Allowance 2,200 21 Accounts Recelvable S 2,200 To record saie on account-return) Inventory 1,320 Cost of Goods sold 1,320 To record cost of goods sold-return) Cash Sales discount 57,172 $578 Accounts Receivable 57,750 To record receipt of payment) Sales return and Allowance $2,310 23 Accounts Receivable To record sale account-return) i nv巳ntory 1,385 Cost of Goods sold To record cost of goods sold return) Inveritory 23 $ 1,386 57,950 24 Accounts Payable 57,950 To record purchase of inventory Inventory To record payment of freight in) $ 4,750 25 25 4,750

26 Accounts Receivable $ 77,000 26 Sales 77,000 (To record sale on account) Cost of Goods sold $ 46,200 26 26 $ 46,200 Inventory To record cost of goods sold) Freight out expense $ 5,390 27 27 Cash $ 5,390 (To record shipping cost) Accounts payable $3,050 28 28 3,050 Inventory (To record purchase return) 3,250 29 29 Professional Expense 3,250 Accounts Payable (To record professional service) Advertising Expense $5,000 30 30 $ 5,000 Cash (To record advertising payment) Supplies Expense $ 26,250 31 Supplies (To record supplies expense,) 26,250 32 Sales return and Allowance $ 1,320 Accounts Receivable (To record sale on account-return) 32 $1,320 $792 32 32 Inventory Cost of Goods sold (To record cost of goods sold-return) $ 792 Salaries Expense $ 6,250 Salaries Payable $6,250 (To record salaries accrued) $ 7,500 34 34 Insurance Expense $ 7,500 Prepaid Insurance (To record insurance expense) 35 Depreciation Expense $ 15,000 $ 15,000 Accumulated Depreciation (To record depreciation expense) 35

Income Statement Balance Sheet Sales, Gross Sales discounts Sales Return Sales, Net Less: Cost of Goods Sold Gross Profit Variable selling Expense Freight out expense Total Variable selling expense Assets Current assets Cash Accounts Receivable Inventory Supplies $349,250 $ 51,607 71,170 47,704 $ 3,750 $ 2,708 S 7,370 -10,078 $339,172 $-223,278 $ 115,894 Total current assets Building and Equipment Less: Accumulated Dep $174,231 $ 15,000 $ 85,000 $259,231 $ 26,563 100,000 $ -26,56:3 Variable Administrative Expense Supplies Expense Total variable admin expense Total Assets Liabilities Current liabilities Accounts Payable Salaries Payable S 26,250 $ -26,250 $ 58,150 6,250 Fixed selling and admin expense Depreciation Expense Insurance Expense Professional Expense Salaries Expense Advertising Expense 15,000 $ 7,500 $ 3,250 12,500 $ 5,000 $ 64,400 Total Liabilities Stockholder's Equity Common Stock Retained Earning Total Stockholder's equity Total Liabilities and Stockholder Equity $175,000 $ 19,831 $194,831 $259,231 Total Fixed selling and admin expense Net Income $-43,250 $ 19,831 Statement of Retained Earning Beginning Retained earning Add: Net Income Less: Dividend Ending Retained Eraning $ 19,831 $ 19,831