Question

Question: Shown here are annual financial data at December 31, 2017, taken from two different companies.

	TeeMart (Retail)	Aim Labs (Manufacturing)
Beginning inventory
Merchandise	\(100,000
Finished goods		\)300,000
Cost of purchases	250,000
Cost of goods manufactured		586,000
Ending inventory
Merchandise	150,000
Finished goods		200,000

Required

1. Compute the cost of goods sold section of the income statement at December 31, 2017, for each company. Include the proper title and format in the solution.

2. Write a half-page memorandum to your instructor (a) identifying the inventory accounts and (b) identifying where each is reported on the income statement and balance sheet for both companies.

Short answer

Answer

1. Cost of goods sold

TeeMart:$200,000

Aim Labs:$686,000

1. Memorandum:

Date: XX/XX/XXXX

To: Instructor

From: Accountant

Subjecting: Reporting line items on the financial statements

Ending merchandise and finished goods inventory will be reported in the balance sheet.

The business entity calculates the cost of goods sold, and will be reported in the income statement.

Step-by-step solution

Definition of Current Assets

The resources that are handled by the business entity for maintaining liquidity as they will generate cash inflow within the operation period are known as current assets. It includes assets such as inventory and receivables.

Calculation of cost of goods sold  

TeeMart
Particular	Amount $
Beginning inventory of merchandise	$100,000
Add: Cost of purchases	250,000
Less: Ending inventory of merchandise	(150,000)
Cost of goods sold	$200,000

Aim Labs
Particular	Amount $
Beginning inventory of finished goods	$300,000
Add: Cost of goods manufactured	586,000
Less: Ending inventory of finished goods	(200,000)
Cost of goods sold	$686,000

Reporting on the income statement and balance sheet

Inventory accounts on the balance sheet:

Particular	TeeMart	Aim Labs
Current assets:
Ending merchandise inventory	$150,000
Ending finished goods inventory		$200,000

Income statement:

Particular	TeeMart	Aim Labs
Net sales
Less: Cost of goods sold	($200,000)	($686,000)
Gross profit