Question

Use the following information (in random order) from a merchandising company and from a service company. Hint: Not all information may be necessary for the solutions.

a. For the merchandiser only, compute:

1. Goods available for sale.

2. Cost of goods sold.

3. Gross profit.

b. Compute net income for each company.

Kleiner Merchandising Company
Accumulated depreciation	\(700
Beginning inventory	5,000
Ending inventory	1,700
Expenses	1,450
Net purchases	3,900
Net sales	9,500

Krug service company
Expenses	\)12,500
Revenues	14,000
Cash	700
Prepaid rent	800
Accounts payable	200
Equipment	1,300

Short answer

Company	Net income
Kleiner Merchandising Company	$850
Krug service company	$1,500

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Cost of Goods Available for Sale

Thecost of goods available for sale defines the total cost incurred by the business entity in the goods kept as finished goods. It is calculated using the beginning inventory, closing inventory, and purchases/manufactured during the year.

Calculation for merchandiser

1. Cost of goods available for sale:

Particular	Amount $
Beginning inventory	$5,000
Add: Net purchases	$3,900
Cost of goods available for sale	$8,900

1. Cost of goods sold:

Particular	Amount $
Cost of goods available for sale	$8,900
Less: Ending inventory	($1,700)
Cost of goods sold	$7,200

1. Gross profit:

Particular	Amount $
Sales	$9,500
Less: Cost of goods sold	($7,200)
Gross profit	$2,300

Calculation of net income

Kleiner company
Particular	Amount $
Gross profit	$2,300
Less: Expenses	($1,450)
Net income	$850

Krug service company
Particular	Amount $
Revenue	$14,000
Less: expenses	($12,500)
Net income	$1,500