Question

Refer to the data in Exercise 14-8. For each company, prepare (1) an income statement, Ignore income taxes.

Short answer

The Net income for Garcon Company is $33,000and for Pepper company is $58,000.

Step-by-step solution

Meaning of Income Statement

An income statement refers to a financial statement that indicates the net profit earned or loss incurred by the business based on its revenue and expenditures.

Preparation of income statement

Income Statement
For The year ended December 31, 2017
	Garcon ($)	Garcon ($)	Pepper ($)	Pepper ($)
Sales		195,030		290,010
Less: Cost of goods sold		(91,030)		(143,010)
Gross Profit		104,000		147,000
Less: Other expenses
Gen and Admin Expenses	21,000		43,000
Selling Expenses	50,000	(71,000)	46,000	(89,000)
Net Income		$33,000		$58,000

Step 3:Calculation of cost of goods sold

Particulars	Garcon ($)	Pepper ($)
Direct Materials
Beginning Raw Materials Inventory	7,250	9,000
Add: Raw Materials purchases	33,000	52,000
Raw Material available for use	40,250	61,000
Less: Ending Raw Materials Inventory	(5,300)	(7,200)
Direct Materials Used	34,950	53,800
Direct Labor	19,000	35,000
Total factory Overhead	50,230	47,110
Total Manufacturing costs	104,180	135,910
Add: Beginning work in process Inventory	14,500	19,950
Total cost of work in process	118,680	155,860
Less: Ending work in process inventory	(22,000)	(16,000)
Cost of goods manufactured	96,680	139,860
Beginning finished goods inventory	12,000	16,450
Cost of goods available for sale	108,680	156,310
Less: Ending finished goods inventory	(17,650)	(13,300)
Cost of goods sold	91,030	143,010

Working note:

Computation of factory overhead

Particulars	Garcon ($)	Pepper ($)
Factory Overhead:
Indirect Labor	1,250	7,660
Factory Supplies used	8,200	3,200
Factory Utilities	9,000	12,000
Rental cost of factory equipment	27,000	22,750
Repairs Factory Equipment	4,780	1,500
Total factory Overhead	50,230	47,110