In 2010, Himmat’s, Inc. (a retail clothing company) sold 57,200 units of its pro

Question

In 2010, Himmat’s, Inc. (a retail clothing company) sold 57,200 units of its product at an average price of $268.00 per unit. The company reported estimated returns and allowances in 2010 of 1.75 percent of gross revenue. Himmat’s actually purchased 59,500 units of its product from its manufacturer in 2010 at an average cost of $183.00 per unit. Himmat’s began 2010 with 8,250 units of its product in inventory (carried at an average cost of $183.00 per unit). Operating expenses (excluding depreciation) for
Himmat’s, Inc. in 2010 were $718,600 and depreciation expense was $310,000. Himmat’s had $3,000,000 in debt outstanding throughout all of 2010. This debt carried an average interest rate of 6.5 percent. Finally, Himmat’s’s tax rate was 40 percent. Himmat’s’s fiscal year runs from January 1 through December 31. Given this information, compute net income for Himmat for 2010.
Also,
Referring back to the previous problem, compute Himmat’s ending inventory balance for 2010 (that is,
what did Himmat’s report as inventory on its December 31, 2010 balance sheet).

Explanation / Answer

Himmat’s, Inc
Income Statement for the year ended Dec. 31, 2010
____________________________________________________________
Gross Sales 57,200 x $268                                   $15,329,600
Less : Returns & Allowances     1.75% of sales            $268,268
Net Sales                                                             $15,061,332

Cost of goods sold
Beginning Inventory 8,250 x $183    $1,509,750
Add : Purchases 59,500 x $183      $10,888,500
Less : Ending Inv.10,550x$183       $1,930,6501   $10,467,600
Gross Profit                                                           $4,593,732
Operating Expenses                                                ($718,600)
Depreciation                                                           ($310,000)
Earnings before Interest & taxes (EBIT)                  $3,565,132
Interest expense $3,000,000 x 6.5%                        ($195,000)
Earnings before taxes (EBT)                                   $3,370,132
Income tax expense $3,370,132 x 40%                  ($1,348,053)
Net Income                                                           $2,022,079
                                                                        ============
what did Himmat’s report as inventory on its December 31, 2010 balance sheet

1Beginning Inventory      8,250 units
Add Purchases            59,500 units
Total Inventory           67,750 units
Less Sales                  57,200 units
Ending Inventory        10,550 units @ $183 = $1,930,650

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