Income Statement
The following costs were incurred by Griff Co., a manufacturer, during 20X4: Accounting and legal fees $ 25,000 Freight-in 175,000 Freight-out 160,000 Officers' salaries 150,000 Insurance 85,000 Sales representatives' salaries 215,000 What amount of these costs should be reported as general and administrative expenses for 20X4? A. $260,000 B. $550,000 C. $635,000 D. $810,000
A. $260,000 The only costs included in general and administrative costs are: Accounting and legal $ 25,000 Officers' salaries 150,000 Insurance 85,000 Total G&A cost $ 260,000 The remaining costs are classified (in order of appearance) as product cost, distribution cost, and sales/promotional costs.
Tag Question The following items were among those reported on Lee Co.'s Income Statement for the year ended December 31, 20X5: Legal and audit fees $170,000 Rent for office space 240,000 Interest on inventory floor plan 210,000 Loss on abandoned data processing equipment used in operations 35,000 The office space is used equally by Lee's sales and accounting departments. What amount of the above-listed items should be classified as general and administrative expenses in Lee's multiple-step Income Statement? A. $290,000 B. $325,000 C. $410,000 D. $500,000
A. $290,000 General and administrative expenses include expenses that are not related to significant specifically identifiable activities. G & A costs benefit the entire firm rather than one specific function. The $170,000 of legal and audit fees are included in G & A expenses and are 1/2 of the rent for the office space ($120,000 = .5 x $240,000). The portion of rent related to accounting is G & A. The other half of the rent is a selling expense, a significant separate activity. The interest and loss are also separately reported. Thus total G & A expense is $290,000 ($170,000 + $120,000).
In a multi-step Income Statement: A. Total expenses are subtracted from total revenues. B. Gross profit (margin) is shown as a separate item. C. Cost of sales and operating expense are subtracted from total revenues. D. Other income is added to revenue from sales.
B. Gross profit (margin) is shown as a separate item. In a multi-step Income Statement, gross profit (margin), operating profit (margin), and pretax income from continuing operations are determined. The focus is on the determination of operating profit rather than simply income from continuing operations. Gross profit (margin) is shown as a separate item.
A company's activities for year two included the following: Gross sales $3,600,000 Cost of goods sold 1,200,000 Selling and administrative expense 500,000 Adjustment for a prior-year understatement of amortization expense 59,000 Sales returns 34,000 Gain on sale of available-for-sale securities 8,000 Gain on disposal of a discontinued business segment 4,000 Unrealized gain on available-for-sale securities 2,000 The company has a 30% effective income tax rate. What is the company's net income for year two? A. $1,267,700 B. $1,273,300 C. $1,314,600 D. $1,316,000
C. $1,314,600 All items are included in net income except the prior year adjustment to amortization expense and the unrealized gain on the AFS securities. The pre-tax income is $1,878,000 and after 30% taxes the net income is $1,314,600.
A company has the following items on its year-end trial balance: Net sales $500,000 Common stock 100,000 Insurance expense 75,000 Wages 50,000 Cost of goods sold 100,000 Cash 40,000 Accounts payable 25,000 Interest payable 20,000 What is the company's gross profit? A. $230,000 B. $275,000 C. $400,000 D. $500,000
C. $400,000 Gross profit is sales less cost of goods sold. In this case gross profit is $500,000 - 100,000 = $400,000.
In LM's single-step income statement, the section titled Revenues consisted of the following: Net sales revenue $187,000 Results from discontinued operations: Loss from operations of segment, net of $1,200 tax effect $ 2,400 Gain on disposal of segment, net of $7,200 tax effect 14,400 12,000 Interest revenue 10,200 Gain on sale of equipment 4,700 Cumulative change in previous year's income due to change In depreciation method, net of $750 tax effect 1,500 Total revenues $215,400 In the revenues section of the income statement, LM should have reported total revenues of A. $217,800 B. $215,400 C. $203,400 D. $201,900
D. $201,900 In a single step income statement, total revenue is the sum of all revenues, including Net Sales Revenue ($187,000) plus Interest Revenue ($10,200) plus Gain on sale of equipment ($4,700), or $201,900. Results from discontinued operations are reported at the end of the income statement. The cumulative change item is not reported in current year's income statement, as it was a one-time adjustment for the prior reporting period.
A multi-step Income Statement is prepared: A. By all corporations. B. By a company whose main activity is sales. C. Because it is required by FASB. D. Because it is more meaningful presentation of revenue and expenses.
D. Because it is more meaningful presentation of revenue and expenses. Correct! A multi-step Income Statement is not required but is prepared because it is a more meaningful presentation of revenue and expenses. In a multi-step Income Statement, gross profit (margin), operating profit (margin), and pretax income from continuing operations are determined. The focus is on the determination of operating profit rather than simply income from continuing operations.
Which of the following should be included in general and administrative expenses? Interest Advertising Yes Yes Yes No No Yes No No
no no Neither expense is normally included in general and administrative expenses because interest and advertising are expenses that result from very specific activities and are frequently material in amount. They should be separately identified.
Tag Question In Baer Food Co.'s 20X5 single-step Income Statement, the section titled "Revenues" consisted of the following: Net sales revenue $187,000 Results from discontinued operations: Loss from operations of the segment (net of $1,200 tax effect) $(2,400) Gain on the disposal of segment (net of $7,200 tax effect) 14,400 12,000 Interest revenue 10,200 Gain on the sale of equipment 4,700 Total revenues $213,900 In the revenues section of the 20X5 Income Statement, Baer Food should have reported total revenues of: A. $216,300 B. $215,400 C. $203,700 D. $201,900
D. $201,900 Correct! Net sales $187,000 Interest revenue 10,200 Gain on equipment 4,700 Total revenues $201,900 This answer includes the gain on the sale of equipment. It is the best answer from among the four because this answer less the gain is not represented. However, many would argue that the gain is not a revenue. Discontinued operations is not a revenue; rather, it is a special item of disclosure found below income from continuing operations in the Income Statement.
Vane Co.'s trial balance of Income Statement accounts for the year ended December 31, 20X4, included the following: Debit Credit Sales $575,000 Cost of sales 240,000 Administrative expenses 70,000 Loss on the sale of equipment 10,000 Sales commissions 50,000 Interest revenue 25,000 Freight out 15,000 Loss on the early retirement of long-term debt 20,000 Uncollectible accounts expense 15,000 _________ _________ Totals $420,000 $600,000 ======== ======== Other information Finished goods inventory: January 1, 20X4 $400,000 December 31, 20X4 360,000 Vane's income tax rate is 30%. In Vane's 20X4 multiple-step Income Statement, what amount should Vane report as the cost of goods manufactured? A. $200,000 B. $215,000 C. $280,000 D. $295,000
A. $200,000 Correct! Cost of goods manufactured is the cost of goods brought to completion during the year. The following schedule shows how it is computed given the information in the question. Thus, cost of goods manufactured must be $200,000. Cost of goods manufactured ? Plus finished goods beginning inventory $400,000 Less finished goods ending inventory (360,000) Equals cost of sales $240,000
In Yew Co.'s 20X4 annual report, Yew described its social awareness expenditures during the year as follows: "The Company contributed $250,000 in cash to youth and educational programs. The Company also gave $140,000 to health and human service organizations, of which $80,000 was contributed by employees through payroll deductions. In addition, consistent with the Company's commitment to the environment, the Company spent $100,000 to redesign product packaging." What amount of the above should be included in Yew's Income Statement as charitable contributions expense? A. $310,000 B. $390,000 C. $410,000 D. $490,000
A. $310,000 The charitable contributions are limited to the $250,000 contribution and the portion of the $140,000 contribution paid for by the firm (which amounted to $60,000 or $140,000 - $80,000 paid by the employees). Thus total charitable contributions are $310,000. The product packaging cost is a promotional cost.
Tag Question Brock Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 20X5 included the following expense and loss accounts: Accounting and legal fees $120,000 Advertising 150,000 Freight-out 80,000 Interest 70,000 Loss on the sale of long-term investments 30,000 Officers' salaries 225,000 Rent for office space 220,000 Sales salaries and commissions 140,000 One-half of the rented premises is occupied by the sales department. Brock's total selling expenses for 20X5 are: A. $480,000 B. $400,000 C. $370,000 D. $360,000
A. $480,000 Correct! Advertising $150,000 Freight-out 80,000 Rent for office space ($220,000 x .50) 110,000 Sales salaries and commissions 140,000 Equals total selling expenses $480,000 Advertising is part of the overall selling effort. Freight-out is delivery expense. Offering delivery service is also part of the overall sales effort. Only 1/2 the rent is included in selling expenses because the sales department occupies only 1/2 the premises.
If the accountant forgets to record salary expense in the Statement of Income, what is the result? A. Net income is too high. B. Net income is too low. C. Retained earnings is too low. D. Retained earnings is correctly stated, as the omission only affects the Income Statement.
A. Net income is too high. If the accountant forgets to record salary expense in the Statement of Income, then net income is too high. Salary expense would be a decrease from revenues, resulting in lower net income.
Lew Co. sold 200,000 corrugated boxes for $2 each. Lew's cost was $1 per unit. The sales agreement gave the customer the right to return up to 60% of the boxes within the first six months, provided an appropriate reason was given. It was immediately determined, with appropriate reason, that 5% of the boxes would be returned. Lew absorbed an additional $10,000 to process the returns and expects to resell the boxes. What amount should Lew report as operating profit from this transaction? A. $170,000 B. $179,500 C. $180,000 D. $200,000
C. $180,000 Lew's operating profit is computed and explained as follows: Sales 200,000 units x $2 selling price = $400,000 Less: Provision for returns 200,000 x .05 x $2 = 20,000[1] Net Sales = $380,000 COGS 200,000 units x $1 cost = $200,000 Less: Provision for returns 10,000 x $1 = 10,000 Net COGS 190,000 units x $1 = 190,000 Gross Profit $190,000 Less: Return processing cost 10,000[2] Operating profit $180,000 [1] The facts state that 5% of the (all) boxes sold would be returned. The fact that 60% could be returned only established the maximum returnable rate, whereas 5% is the expected return rate. [2] Since Lew has "absorbed" $10,000 to process returns, it has charged that amount to sales. The fact that Lew expects to resell the boxes is not recognized until the boxes are actually resold.
Blythe Corp. is a defendant in a lawsuit. Blythe's attorneys believe it is reasonably possible that the suit will require Blythe to pay a substantial amount. What is the proper financial statement treatment for this contingency? A. Accrued and disclosed. B. Accrued but NOT disclosed. C. Disclosed but NOT accrued. D. No disclosure or accrual.
C. Disclosed but NOT accrued. Contingencies are accrued and recognized as a liability when the occurrence of the liability is probable and the amount can be reasonably estimated. This lawsuit is reasonably possible, but not probable. Reasonably possible is typically a 50/50 chance of occurrence, where probable is a higher likelihood of occurrence. This answer is correct because this lawsuit would be disclosed, but not accrued.