Q27E-2 - Horngren'S Financial And Managerial Accounting

Question

Consider the data of the following companies which use the periodic inventory system

Company	Net Sales Revenue	Beginning Merchandise Inventory	Net Cost of Purchases	Ending Merchandise Inventory	Cost of Goods Sold	Gross Profit
Large	\( 105,000	\) 23,000	\( 59,000	\) 22,000	(a)	\(45,000
Small	(b)	27,000	94,000	(c)	99,000	40,000
Medium	96,000	(d)	58,000	24,000	68,000	(e)
Petite	80,000	8,000	(f)	6,500	(g)	44,000

Requirements

2. Prepare the income statement for the year ended December 31, 2019, for Large Company, which uses the periodic inventory system. Include a complete heading, and show the full computation of cost of goods sold. Large’s operating expenses for the year were \)12,000.

Step-by-Step Solution

Answer

Net income for large company amounts to $33,000.

Step 1: Computation of cost of goods sold for large company

$\begin{array}{c}\left(a\right)\mathbf{C}\mathbf{O}\mathbf{G}\mathbf{S}\mathbf{=}\mathbf{B}\mathbf{e}\mathbf{g}\mathbf{i}\mathbf{n}\mathbf{n}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{+}\mathbf{N}\mathbf{e}\mathbf{t}\mathbf{ }\mathbf{P}\mathbf{u}\mathbf{r}\mathbf{c}\mathbf{h}\mathbf{a}\mathbf{s}\mathbf{e}\mathbf{s}\mathbf{-}\mathbf{E}\mathbf{n}\mathbf{d}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\\ \mathbf{=}\mathbf{\$}\mathbf{23}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{59}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{22}\mathbf{,}\mathbf{000}\\ \mathbf{=}\mathbf{\$}\mathbf{60}\mathbf{,}\mathbf{000}\end{array}$

Step 2: Income statement for large company

                                                         LARGE COMPANY

                                                          Income Statement

                                                     Year Ended Dec 31, 2019

                            Net Sales Revenue                                      $ 105,000

                            Less: Cost of Goods Sold                                  60,000

                            Gross Profit                                                      $ 45,000

                            Less: Operating Expenses                              $ 12,000

                            Gross Profit                                                    $ 33,000