The following is a list of selected events for Unger Sales and Service for 2012.
ID: 2420812 • Letter: T
Question
The following is a list of selected events for Unger Sales and Service for 2012. Unger uses a perpetual inventory system and had a zero inventory balance prior to these transactions.
1) Purchased merchandise on account for $67,000.
2) Sold inventory costing $48,000 for $88,000 on account.
3) Paid transportation-out cost of $1,000 on goods sold.
4) Paid salary expense of $25,000.
5) A count of the inventory revealed that there was $18,500 of inventory on hand at the end of 2012.
Required:
Answer the following questions based on the above information.
a) What was Unger's net income for 2012?
b) Compute gross margin for 2012.
c) What amount of inventory will appear on the balance sheet for 2012?
d) Prepare an income statement for 2012.
Explanation / Answer
a)
Net income for 2012
Revenue $88000
Less:
COGS $48000
Paid transportation-out cost of $1,000
salary expense $25,000.
Net INcome $14000
b) Gross margin
Calculation of cost of goods sold
Cost of goods sold (COGS)= opening inventory + purchases - closing inventory
Transportation-out or freight-out costs are not product costs and are not inventoriable. Transportation-out costs are costs of selling the products and will appear as a selling expense (perhaps as Delivery Expense) in the period in which they occur.
b) gross margin
Revenue $88000
Less:
COGS $48000
Gross profit = $40000
Gross margin = gross profit /revenue*100
=$40000/$88000*100= 45.45%
c) Closing inventory appears on the balance sheet therefore for 2012 $18,500 will appear.
d) same as part a)
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