Question

Valley Company’s adjusted trial balance on August 31, 2016, its fiscal year-end, follows. Debit Credit Merchandise inventory $ 38,000 Other (noninventory) assets 152,000 Total liabilities $ 43,890 Common stock 51,152 Retained earnings 74,433 Dividends 8,000 Sales 259,920 Sales discounts 3,977 Sales returns and allowances 17,155 Cost of goods sold 100,577 Sales salaries expense 35,609 Rent expense—Selling space 12,216 Store supplies expense 3,119 Advertising expense 22,093 Office salaries expense 32,490 Rent expense—Office space 3,119 Office supplies expense 1,040 Totals $ 429,395 $ 429,395

On August 31, 2015, merchandise inventory was $30,666. Supplementary records of merchandising activities for the year ended August 31, 2016, reveal the following itemized costs.

Invoice cost of merchandise purchases	$	111,720
Purchase discounts received		2,346
Purchase returns and allowances		5,363
Costs of transportation-in		3,900

	VALLEY COMPANY Income Statement For Year Ended August 31, 2016 Sales $259,920 Less: Sales discounts $3,977 Less: Sales returns and allowances 17,155 21,132 Net sales 238,788 238,788 Expense Selling expenses Total selling expenses 0 General and administrative expenses Total general and administrative expenses 0 Total expenses 0

3. Prepare a multiple-step income statement that begins with net sales and includes separate categories for: cost of goods sold, selling expenses, and general and administrative expenses.

Answer 1

3.

Valley company
Income Statement
For the Year ended Aug 31, 2016
		Amount $
Sales		259920
Less: Sales discounts	3977
Less: Sales returns and allowances	17155	21132
Net Sales		238788
Less: COGS>
Inventory Ob	30666
add: Inventory purchase	111720
Less: Purchase discounts recd.	-2346
Less: Purchase ret and Allow	-5363
Add: costs of transport-In	3900
Less:Inventory CB	-38000
COGS		100577
Gross Profit		138211
Less: Selling Expenses:
Salaries	35609
Rent	12216
Store supplies	3119
Advertising	22093
Total Selling Expenses		73037
Income before G & Ad expenses:		65174
Less: Gen. & Admin expenses:
Salaries	32490
Rent	3119
Office Supplies	1040
Total G and Admin expenses		36649
Income before taxation		28525