5-38PGA - Horngren'S Financial And Managerial Accounting

Question

The records of Farm Quality Steak Company list the following selected accounts for the quarter ended April 30, 2018:

Interest Revenue \( 400                                         Accounts Payable \) 17,700

Merchandise Inventory 45,000                           Accounts Receivable 38,200

Notes Payable, long-term 54,000                       Accumulated Depreciation—Equipment 37,700

Salaries Payable 2,800                                          Common Stock 30,000

Net Sales Revenue 298,000                                 Retained Earnings 5,380

Rent Expense (Selling) 15,100                            Dividends 25,000

Salaries Expense (Administrative) 2,000         Cash 7,100

Office Supplies 6,500                                            Cost of Goods Sold 154,960

Unearned Revenue 13,100                                  Equipment 132,000

Interest Expense 2,100                                         Interest Payable 1,700

Depreciation Expense—Equipment (Administrative) 1,320 

Rent Expense (Administrative) 7,100

Utilities Expense (Administrative) 4,600           Salaries Expense (Selling) 6,000

Delivery Expense (Selling) 3,800                       Utilities Expense (Selling) 10,000

Requirements 

1. Prepare a single-step income statement. 

2. Prepare a multi-step income statement. 

3. M. Doherty, manager of the company, strives to earn a gross profit percentage of at least 50%. Did Farm Quality achieve this goal? Show your calculations

Step-by-Step Solution

Answer

The gross profit of the company is $143,040.

 

Meaning of Operating Income

In accounting, operating income refers to the revenues generated by a business from its core operations, such as the sale and purchase of goods and services. A company reports its operating income separately in a multi-step income statement

Preparation of single-step income statement

Farm Quality Steak Company
Single-step Income Statement
For the quarter ended April 30, 2018
Particulars	Amounts ($)
Revenues
Net sales revenue	298,000
Interest revenue	400
Total revenue	298,400
Less: Expenses
Cost of goods sold	(154,960)
Selling expenses
Rent expense	(15,100)
Delivery expense	(3,800)
Salaries expense	(6,000)
Utilities expense	(10,000)
Less: Administrative expenses
Salaries expense	(2,000)
Depreciation on equipment	(1,320)
Utilities expense	(4,600)
Rent expense	(7,100)
Interest expense	(2,100)
Net Income	$91,420

Preparation of multi-step income statement

Farm Quality Steak Company
Multi-step Income Statement
For the quarter ended April 30, 2018
Particulars	Amounts ($)
Net sales revenue	298,000
Less: Cost of goods sold	(154,960)
Gross profit	143,040
Less: Operating expenses
Selling expenses
Rent expense	(15,100)
Delivery expense	(3,800)
Salaries expense	(6,000)
Utilities expense	(10,000)
Less: Administrative expenses
Salaries expense	(2,000)
Depreciation on equipment	(1,320)
Utilities expense	(4,600)
Rent expense	(7,100)
Income from operations	93,120
Add: Other revenues and gains
Interest revenue	400
Less: Other expenses and losses
Interest expense	(2,100)
Net Income	$91,420

Computation of gross profit percentage

$$\begin{gathered} Gross profit percent = \frac{Gross profit }{Net sales Revenue}\times 100 \\ =\frac{\$143,040}{\$298,000}\times 100 \\ =48\% \end{gathered}$$

Comment: No, the company did not succeed in achieving its goal of 50% gross profit.