Financial Accounting, 8th Edition
Financial Accounting, 8th Edition
8th Edition
ISBN: 9780078025556
Author: Robert Libby, Patricia Libby, Daniel Short
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 5, Problem 10E
To determine

Compute the missing values of the income statement for the year ended 2015 under different cases.

Expert Solution & Answer
Check Mark

Answer to Problem 10E

Preparation of income statement and computation of missing amounts as given below:

Company N
Statement of Income
For the year ended 2015
ParticularsAmount
Case ACase BCase CCase DCase E
Sales revenue  $800 $600 $500 (12) $1,170(14) $760
Less: Cost of Goods sold(1) $425($150)(9) $280$500$320
Gross margin$375 (4) $450(8) $220(11) $670$440
Less: Administrative expense $125(5) $100$70$120$80
Less: Selling expense(2) $50$50$80$350$240
Pretax income$200 $300 (7) $70$200 (13) $120
Less: Income tax expense(3) $50$30$20$50$20
Net income$150 (6) $270 $50 (10) $150 $100

Table (1)

Explanation of Solution

Financial statement: Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making. The financial statements show the financial status of the business. The financial statements consist of the balance sheet, income statement, statement of retained earnings, and the cash flow statement.

Income statement: Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.

Working Note:

Determine the amount of cost of goods sold.

Cost of goods sold=Sales revenueGross margin=$800$375=$425 (1)

Determine the amount of selling expense.

Selling expense=Gross marginAdministrative expense Pretax income=$375$125$200=$50 (2)

Determine the amount of income tax expense.

Income tax expense=Pretax incomeNet income after tax=$200$150=$50 (3)

Determine the amount of gross margin.

Gross margin=Sales revenueCost of goods sold=$600$150=$450 (4)

Determine the amount of administrative expense.

Administrative expense=Gross marginSelling expense Pretax income=$450$50$300=$100 (5)

Determine the amount of net income.

Net income=Pretax income Income tax expense=$300$30=$270 (6)

Determine the amount of pretax income.

Pretax income=Net income after tax+Income tax expense=$50+$20=$70 (7)

Determine the amount of gross margin.

Gross margin= Pretax income+Selling expense+Administrative expense=$70+$80+$70=$220 (8)

Determine the amount of cost of goods sold.

Cost of goods sold= Sales revenueGross margin=$500$220(8)=$280 (9)

Determine the amount of net income.

Net income=Pretax incomeIncome tax expense=$200$50=$150 (10)

Determine the amount of gross margin.

Gross margin= Pretax income+Selling expense+Administrative expense=$200+$350+$120=$670 (11)

Determine the amount of sales revenue.

Sales revenue=Cost of goods sold+Gross margin=$500+$670(11)=$1,170 (12)

Determine the amount of pretax income.

Pretax income=Net income after tax+Income tax expense=$100+$20=$120 (13)

Determine the amount of sales revenue.

Sales revenue=Cost of goods sold+Gross margin=$320+$440=$760 (14)

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 5 Solutions

Financial Accounting, 8th Edition

Ch. 5 - Briefly explain the major classifications of...Ch. 5 - Prob. 12QCh. 5 - Prob. 13QCh. 5 - Prob. 14QCh. 5 - If average total assets increase, but net income,...Ch. 5 - Prob. 2MCQCh. 5 - Prob. 3MCQCh. 5 - Prob. 4MCQCh. 5 - Prob. 5MCQCh. 5 - Prob. 6MCQCh. 5 - Prob. 7MCQCh. 5 - Prob. 8MCQCh. 5 - Prob. 9MCQCh. 5 - Prob. 10MCQCh. 5 - Prob. 1MECh. 5 - Prob. 2MECh. 5 - Prob. 3MECh. 5 - Prob. 4MECh. 5 - Determining Financial Statement Effects of Sales...Ch. 5 - Prob. 6MECh. 5 - Prob. 7MECh. 5 - Matching Players in the Accounting Communication...Ch. 5 - Prob. 2ECh. 5 - Finding Financial Information: Matching...Ch. 5 - Prob. 4ECh. 5 - Preparing a Classified Balance Sheet Campbell Soup...Ch. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - Prob. 10ECh. 5 - Prob. 11ECh. 5 - Stock Issuances and the Statement of Stockholders...Ch. 5 - Prob. 13ECh. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Prob. 18ECh. 5 - Prob. 19ECh. 5 - Prob. 1PCh. 5 - Matching Definitions with Balance Sheet-Related...Ch. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - Preparing a Classified (Multiple-Step) Income...Ch. 5 - Prob. 6PCh. 5 - Determining and Interpreting the Effects of...Ch. 5 - Determining the Effects of Transactions on Ratios...Ch. 5 - Prob. 9PCh. 5 - Prob. 1APCh. 5 - Prob. 2APCh. 5 - Prob. 3APCh. 5 - Prob. 4APCh. 5 - Prob. 1CPCh. 5 - Prob. 2CPCh. 5 - Prob. 3CPCh. 5 - Prob. 4CPCh. 5 - Prob. 5CPCh. 5 - Prob. 6CPCh. 5 - Prob. 7CPCh. 5 - Evaluating the Impact of Transactions on Statement...Ch. 5 - Prob. 2CC
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education