Prepare income statements for both Garcon Company and Pepper Company. Prepare the current assets section of the balance sheet for each company.
Transcribed text From Image: Using the following data Garcon Pepper Company Company $12,000 14,500 7,250 27,000 19,000 17,650 22,000 5,300 9,000 8,200 21,000 1,250 4,780 33,000 50,000 195,030 20,000 212,500 13,200 $ 16,450 Beginning finished goods inventory Beginning work in process inventory Beginning raw materials inventory Rental cost on factory equipment Direct labor Ending finished goods inventory Ending work in process inventory Ending raw materials inventory Factory utilities Factory supplies used General and administrative expenses Indirect labor 19,950 9,000 22,750 35,000 13,300 16,000 7,200 12,000 3,200 43,000 7,660 1,500 52,000 46,000 290,010 15,700 115,825 19,450 Repairs-Factory equipment Raw materials purchases Selling expenses Sales Cash Factory equipment, net Accountsreceivable, net
Expert Chegg Question Answer:
Concepts and reason
Income Statement: It is the statement prepared for the period to determine the income earned over the period. It includes every business-related revenue and expense for the period. To find out net income total of expense is deducted from the total revenue.
Current Asset: Current asset can be defined as the money to be generated within one year or accounting cycle whichever is longer. Current assets are generated or acquired to generate cash inflow through operating activities or investing activities. Fundamentals
Cost of goods sold: Technically, the cost of goods sold is found out by deducting ending finished goods from the cost of goods available for sale. It is the total manufacturing costs incurred on the sold goods regardless of the period it has been incurred. It means that the cost of the beginning finished goods inventory is also included in the cost of goods sold along with the cost of finished goods produced during the period. This cost is ascertained in the finished goods inventory account ledger.
Cost of goods manufactured: Technically it is defined as the deduction of ending work in process from the sum of beginning work in process and manufacturing cost incurred for the period. It denotes the cost of goods which have been completed in every respect to become available for the sale.
Direct Materials (Raw Materials): It is also known as input materials. It is used in production to produce goods. During production, work is done to convert direct materials into a new product having a different identity and uses. Direct materials are raw materials like natural resources or small products which is assembled together to form a new product. It is the primary part of the product which defines the identity or uses of the new product. It consists of the most portion of the finished goods. The cost and quantity of direct materials used are known to an exact extent. These are an integral part of the product. Examples: Automobile parts used in the manufacturing of the cars, chips, and motherboards used in the assembling of the computer.
Direct Labor: The workforce who is directly involved in the process to convert raw materials or input materials into the product is called direct labor. The cost and physical involvement of direct labor are extensively for the product and its value is ascertained precisely. Direct labor has clear contact with production, job work or assembling process. The effort made by direct labor for the product is clearly visible and costs are precisely ascertained. This is an integral part of the production. This is a variable cost.
Work in process: Technically, total work in process cost includes the beginning work in process costs and the total manufacturing overheads introduced during the period. Work in process cost is the sum of all costs like direct materials, direct labor, and manufacturing overheads introduced in the production process during the period to get converted into the finished product.
Current asset section: Current asset section is shown in the balance sheet. Elements of the current asset are arranged in the order of the liquidity of the elements. The highly liquid current asset is put before the less liquid current asset. Show more First Step | All Steps | Answer Only
Step 1 of 2
Prepare the income statement as follows: –
Therefore, the income before tax for the company G and P is $33,000 and $58,000, respectively.
Calculate the cost of raw materials used as follows: –
Therefore, the cost of raw materials used for the company G and P is $34,950 and $53,800, respectively.
Calculate the cost of goods manufactured as follows: –
Therefore, the cost of goods manufactured for the company G and P is $96,680 and $139,860, respectively.
Calculate the cost of goods sold as follows: –
Therefore, the cost of goods sold for the company G and P is $91,030 and $143,010, respectively.Part 1.a
Explanation | Common mistakes | Hint for next step
The cost of raw materials used in the production has been found out by deducting the ending inventory from the sum of beginning inventory and the purchases made during the period.
The cost of goods manufactured has been found out deducting the ending work-in-process from the sum of the beginning work-in-process and the manufacturing costs incurred during the period. Manufacturing costs include raw materials used, direct labor, factory utilities, factory supplies used, indirect labor, rental cost on factory equipment, and repair cost of factory equipment.
The cost of goods sold has been found out by deducting the ending finished goods from the sum of beginning inventory and the cost of goods manufactured during the period.
The gross profit has been found out by deducting the cost of goods sold from the sales revenue. The operating expenses i.e. general administrative expense and selling expense has been deducted from the gross profit to find the net income before tax.
Do not deduct operating expense to find the gross profit, it would make the amount of gross profit wrong. It would not make the net income before tax incorrect, but it is the wrong format.
With the given information in the question, prepare the current asset section.
Step 2 of 2
Prepare the current asset section as follows: –
Therefore, the value of the current asset for the company G and P is $78,150 and $71,650, respectively.Part 1.b
Explanation | Common mistakes
Current assets have been arranged in order of its liquidity. The highly liquid asset has been assigned before the less liquid asset. The cash has been given the first place after that account receivables, ending inventory of finished goods, ending inventory of work-in-process, and ending inventory of raw materials have been placed in the column.
Do not interpret factory equipment as the current asset, it would make the answer wrong. Factory equipment is not a current asset for the company.
B C 1 Income Statement 2 Particulars Company G Company P 3 Sales $195,030 $290,010 4 Less 5 Cost of goods sold 6 Gross profit 7 Less: Operating Expenses 8 General administrative expense 9 Selling expenses (S91,030)(S143,010) $104,000 $147,000 ($21,000) (S43,000) (S50,000) (S46,000) 10 Net Income before tax S33.000 $58.000 A B C 1 Calculation for the cost of raw materials used 2 Particulars 3 Beginning raw materials 4 Add: Purchases 5 Less: Ending raw materials inventory Company G Company P $9,000 $7,250 $33,000 $52,000 (S5,300) (S7,200) 6 Total raw materials used $34.950 S53.800 А В C 1 Calculation for the cost of goods manufactured 2 Particulars Company G Company P 3 Beginning work-in-process 4 Add: Raw materials used $14,500 $19,950 S34,950 $53,800 5 Add: Direct Labor s19,000 S35,000 6 Add: Factory utilities 7Add: Factory supplies used $9,000 S12,000 S3,200 $8,200 8 Add: Indirect labor $1,250 $7,660 9 Add: Repair Factory Equipment 10 Add: Rental cost of factory equipment $4,780 $1,500 $22,750 S27,000 11 Less: Ending work-in-process ($22.000) S16.000] 12 Total cost of goods manufactured $96.680 S139.860 A В 1 Calculation for the cost of goods sold 2 Particulars Company G Company P $12,000 3 Beginning finished goods S16,450 4 Add: Cost of goods manufactured $96,680 S139,860 S17,650$13,300) $91.030 $143.010 5 Less: Ending finished goods inventory 6 Total cost of goods sold A в с 1 Partial Balance Sheet 2 Current Asset Section for period ending as on 31st December 2015 Company 3 4 Particulars G P 5 Cash $20,000 S15,700 6 Account receivables $13,200 S19,450 7 Ending inventory $17,650 $13,300 8 Finished Goods 9 Work-in-process $22,000 S16,000 10 Raw Materials S5,300 $7,200 B C 1 Income Statement 2 Particulars Company G Company P 3 Sales $195,030 $290,010 4 Less 5 Cost of goods sold 6 Gross profit 7 Less: Operating Expenses 8 General administrative expense 9 Selling expenses (S91,030)(S143,010) $104,000 $147,000 ($21,000) (S43,000) (S50,000) (S46,000) 10 Net Income before tax S33.000 $58.000 B C 1 Income Statement 2 Particulars Company G Company P 3 Sales $195,030 $290,010 4 Less 5 Cost of goods sold 6 Gross profit 7 Less: Operating Expenses 8 General administrative expense 9 Selling expenses (S91,030)(S143,010) $104,000 $147,000 ($21,000) (S43,000) (S50,000) (S46,000) 10 Net Income before tax S33.000 $58.000 А В C Income Statement 1 2 Particulars Company G Company P 3 Sales $290,010 $195,030 4 Less (S64,030) (S120,260) 5 Cost of goods sold 6 Gross profit 7 Less: Operating Expenses 8 General administrative expense 9 Selling expenses $225,980 $169,750 ($21,000) (S43,000) (S50,000) (S46,000) B C 1 Income Statement 2 Particulars Company G Company P 3 Sales S290,010 S195,030 4 Less 5 Cost of goods sold 6 Gross profit 7 Less: Operating Expenses 8 General administrative expense 9 Selling expenses ($169,750) S120,260) $120,260 $169,750 ($21,000) (S43,000) (S50,000) S46,000) 10 Net Income before tax S49.260 S80.750