Q 22E-2 - Horngren'S Financial And Managerial Accounting

Question

Nutriset Foods reports merchandise inventory at the lower-of-cost-or-market. Prior to releasing its financial statements for the year ended March 31, 2019, Nutriset’s preliminary income statement, before the year-end adjustments, appears as follows:

 

                                                   NUTRISET FOODS

                                           Income Statement (Partial)

                                           Year Ended March 31, 2019

                            Net Sales Revenue                              \( 118,000

                            Cost of Goods Sold                                  47,000

                            Gross Profit                                            \) 71,000

 

Nutriset has determined that the current replacement cost of ending merchandise inventory is \(19,500. Cost is \)24,000.

Requirements

2. Prepare a revised partial income statement to show how Nutriset Foods should report sales, cost of goods sold, and gross profit.

Step-by-Step Solution

Answer

Cost of goods sold: $52,500

Gross profit: $65,500

Step-by-Step-Solution Step 1: COGS adjustment

The cost of goods sold is the direct material expenses including expenses relating to materials like a carriage, insurance, etc. 

COGS in the given case would be

$$\begin{gathered} \mathit{A}\mathit{d}\mathit{j}\mathit{u}\mathit{s}\mathit{t}\mathit{e}\mathit{d}\mathit{C}\mathit{O}\mathit{G}\mathit{S}\mathbf{=}\mathit{C}\mathit{u}\mathit{r}\mathit{r}\mathit{e}\mathit{n}\mathit{t}\mathit{C}\mathit{O}\mathit{G}\mathit{S}\mathbf{+}\mathit{A}\mathit{d}\mathit{j}\mathit{u}\mathit{s}\mathit{t}\mathit{m}\mathit{e}\mathit{n}\mathit{t}\mathit{f}\mathit{o}\mathit{r}\mathit{L}\mathit{C}\mathit{M}\mathit{a}\mathit{p}\mathit{p}\mathit{r}\mathit{o}\mathit{a}\mathit{c}\mathit{h} \\ \mathbf{=}\mathbf{\$}\mathbf{47}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{500} \\ \mathbf{=}\mathbf{\$}\mathbf{52}\mathbf{,}\mathbf{500} \end{gathered}$$

Step 2: Revised Income statement

NUTRISET FOODS
Revised Income Statement (Partial)
Year Ended March 31, 2019
Net Sales Revenue		$118,000
Cost of Goods Sold		$52,500
Gross Profit		$65,500