Problem #1 (15 points) e end of Swann Company year-end on December 31, 2016, Swa

Question

Problem #1 (15 points) e end of Swann Company year-end on December 31, 2016, Swann Company uses a $6,400; Purchase Discounts $12,000; and Freight-in $5,600; At th periodic inventory system and has these account balances at year end: Purchases $447,000; Purchase Returns and Allowances beginning inventory of $40,500; ending inventory of $65,000; sales revenue of $725,000, sales return and allowance $11,000 and sales discount of $2,000. Instructions Prepare an income statement through gross profit for the year December 31,2016 1) Determine the cost of goods available for sale 2) Determine the cost of goods sold 3) Determine the gross profit 4) Determine the gross profit rate Solution # 1

Explanation / Answer

Here,it is assumed that ending inventory has sales returns and doesn't has purchase returns.

Answer for 1)

Cost of goods available for sale is ending inventory i.e $65000.

Answer for 2)

Cost of goods sold:

beginninginventory+(purchase-returns-discount)+other direct expenses- ending inventory.

$40500+($447000-$6400-$12000)+$5600-$65000

=$409700

Answer for 3)

Gross profit:(sales-sales return-discount)-Cost of goods sold

=($725000-$11000-$2000)-$409700

=$302300

Gross profit percentage:

Gross profit×100/(sales-salesreturn-discount)

$302300/$712000=42.46%

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