Prepare a partial income statement including sales


Response to the following problem:

The following information relates to the Pike Corporation for the fiscal year ended December 31, 2016:

a. Merchandize inventory on hand at January 1 is $100,000.

b. During the year, the company purchased merchandize on credit from a single supplier for $200,000; terms 2/10, n30. Half of the purchases were paid within the discount period. The other half has not yet been paid.

c. The company paid $8,000 in freight charges on merchandize purchased, fob shipping point.

d. Damaged merchandize with an invoice price of $4,000 was returned to the supplier. A cash refund for the returned amount less discount was received. This merchandize was part of the purchase in transaction b that had been paid within the discount period.

e. Sold merchandize on credit to a customer for $20,000. (Cost to Pike: $14,000.)

f. An allowance of $2,750 was granted because merchandize sold in e was not satisfactory. (Cost: $2,000.)

g. A cheque for $2,750 was issued to the customer referred to in f.

h. The ending inventory was counted and valued at $290,000.

Assume Pike uses the perpetual inventory system.

Required:

1. Prepare journal entries for each of the transactions. Include a brief description for each entry. Show calculations for shrinkage.

2. Prepare a partial income statement including sales, cost of goods sold, and gross profit. Calculate gross profit percentage.

3. Prepare the necessary closing entries. Include general ledger account numbers and a brief description for each entry.

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Cost Accounting: Prepare a partial income statement including sales
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