Belk Antiques uses the periodic inventory system to account for its inventory tr

Question

Belk Antiques uses the periodic inventory system to account for its inventory transactions. The following account titles and balances were drawn from Belk’s records for the year 2014: beginning balance in inventory, $42,000; purchases, $128,000; purchase returns and allowances, $12,000; sales, $520,000; sales returns and allowances, $3,900; freight-in, $1,000; and operating expenses, $130,000. A physical count indicated that $26,000 of merchandise was on hand at the end of the accounting period.

1.) Prepare a schedule of cost of goods sold.

2.) Prepare a multistep income statement.

2.) Prepare a multistep income statement.

Explanation / Answer

Cost of goods sold = opening stock + net purchases + freight in - closing inventory= 42000+116000+1000 - 26000 = 133000

Income statement = net sakes - cost of goods sold = gross profit

          516000 - 133000 = 383100

net profit = gross profit - operating expenses = 383100 - 130000 = 253100

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