Q11SE - Horngren'S Financial And Managerial Accounting

Question

Old Mills’s income statement appears as follows (amounts in thousands):

Use the following ratio data to complete Old Mills’s income statement:

1. Inventory turnover is 3.70 (beginning Merchandise Inventory was \(810; ending

Merchandise Inventory was \)770).

2. Profit margin ratio is 14%.

Step-by-Step Solution

Answer

Answer

Complete income statement given below.

Step1: Preparation of Income Statement

Income Statement- Old Mills Company
For year ended 31 Dec, 2018
Particulars	Amount
Net sales Revenue	$6,900.00
Cost of Goods Sold	2,923.00
Gross Profit	3,977.00
Selling and Administrative Expenses	1,710.00
Interest Expense ($3,977-1,710-120-1,150)	997.00
Other Expenses	120.00
Income Before Income Taxes	1,150.00
Income Tax Expense ($1,150-$966)	184.00
Net Income	$966.00

Step 2: Working Notes

Inventory Turnover= 3.70

Cost of goods sold/ Average Inventory= 3.70

Average Inventory =($810+770)/2 = $790

Cost of Goods Sold = 3.70x 790 = $2,923

Net Sales = $6,900

Profit Margin ratio= 14%

Net Income = $6,900x14% = $966.00