Question

Valley Company’s adjusted trial balance on August 31, 2017, its fiscal year-end, follows.

	Debit	Credit
Merchandise inventory	\(41,000
Other (noninventory) assets	130,400
Total liabilities		\)25,000
Common stock		10,000
Retained earnings		94,550
Dividends	8,000
Sales		225,600
Sales discount	2,250
Sales return and allowances	12,000
Cost of goods sold	74,500
Sales salaries expenses	32,000
Rent expenses – selling space	8,000
Store supplies expenses	1,500
Advertising expenses	13,000
Office salaries expenses	28,500
Rent expenses – office space	3,600
Office supplies expenses	400
Total	\(355,150	\)355,150

On August 31, 2016, merchandise inventory was \(25,400. Supplementary records of merchandising activities for the year ended August 31, 2017, reveal the following itemized costs.

Invoice cost of merchandise purchased	\)92,000
Purchase discount received	2,000
Purchase return and allowances	4,500
Cost of transportation-in	4,600

Required

1. Compute the company’s net sales for the year.

2. Compute the company’s total cost of merchandise purchased for the year.

3. Prepare a multiple-step income statement that includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.

4. Prepare a single-step income statement that includes these expense categories: cost of goods sold, selling expenses, and general and administrative expenses.

Short answer

The net income of the business entity is$49,850.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Income Statement

The statement prepared by the accountant represents the net benefits generated by the business entity by reporting the expenses, and the revenue of the business is known as the income statement.

Calculation of net sales of the year

Particular	Amount $
Sales	$225,600
Less: Sales discount	(2,250)
Less: Sales return and allowance	(12,000)
Net sales	$211,350

Calculation of total cost of merchandise purchased for the year

Particular	Amount $
Invoice cost of merchandise purchased	$92,000
Less: Purchase discount received	(2,000)
Less: Purchase return and allowance	(4,500)
Add: Cost of transportation in	4,600
Total cost of merchandise purchased	$90,100

Multi-step income statement

Particular	Amount $	Amount $
Net sales		$211,350
Less: Cost of goods sold		(74,500)
Gross profit		136,850
Less: Other expenses
Selling expenses
Sales salaries expenses	(32,000)
Rent expenses – selling space	(8,000)
Advertising expenses	(13,000)	(53,000)
Office expenses
Office salaries expenses	(28,500)
Rent expenses – office space	(3,600)
Office supplies expenses	(400)
Store supplies expenses	(1,500)	(34,000)
Net income		$49,850

Single-step income statement

Particular	Amount $
Net sales	$211,350
Less: Cost of goods sold	(74,500)
Sales salaries expenses	(32,000)
Rent expenses – selling space	(8,000)
Store supplies expenses	(1,500)
Advertising expenses	(13,000)
Office salaries expenses	(28,500)
Rent expenses – office space	(3,600)
Office supplies expenses	(400)
Net income	$49,850