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Financial & Managerial Accounting
Found in: Page 206
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Use the following information (in random order) from a merchandising company and from a service company. Hint: Not all information may be necessary for the solutions.

a. For the merchandiser only, compute:

1. Goods available for sale.

2. Cost of goods sold.

3. Gross profit.

b. Compute net income for each company.

Kleiner Merchandising Company

Accumulated depreciation

$700

Beginning inventory

5,000

Ending inventory

1,700

Expenses

1,450

Net purchases

3,900

Net sales

9,500

Krug service company

Expenses

$12,500

Revenues

14,000

Cash

700

Prepaid rent

800

Accounts payable

200

Equipment

1,300

Company

Net income

Kleiner Merchandising Company

$850

Krug service company

$1,500

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Definition of Cost of Goods Available for Sale

The cost of goods available for sale defines the total cost incurred by the business entity in the goods kept as finished goods. It is calculated using the beginning inventory, closing inventory, and purchases/manufactured during the year.

Step 2: Calculation for merchandiser

  1. Cost of goods available for sale:

Particular

Amount $

Beginning inventory

$5,000

Add: Net purchases

$3,900

Cost of goods available for sale

$8,900

  1. Cost of goods sold:

Particular

Amount $

Cost of goods available for sale

$8,900

Less: Ending inventory

($1,700)

Cost of goods sold

$7,200

  1. Gross profit:

Particular

Amount $

Sales

$9,500

Less: Cost of goods sold

($7,200)

Gross profit

$2,300

Step 3: Calculation of net income

Kleiner company

Particular

Amount $

Gross profit

$2,300

Less: Expenses

($1,450)

Net income

$850

Krug service company

Particular

Amount $

Revenue

$14,000

Less: expenses

($12,500)

Net income

$1,500

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