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I. i. Purchased inventory from suppliers worth $250,000\$ 250,000 cash. I ii. Record...
Apr 24, 2024
I. i. Purchased inventory from suppliers worth $250,000\$ 250,000 cash. I ii. Recorded sales revenue of $650,000\$ 650,000, of which $500,000\$ 500,000 constituted cash sales. iii. Collected $325,000\$ 325,000 from accounts receivable. I| iv. Cost of goods sold was $225,000\$ 225,000. v. Paid interest expense of $5,000−\$ 5,000^{-} vi. Paid wages of $80,000\$ 80,000 | ศ. The following transactions also need to be recorded so you can prepare the income statement for the year ended 30 June 2023: ศ. vii. The prepaid rent of $10,000\$ 10,000 at 1 July 2022 was for two months rent (July and August 2022). In August 2022, the company prepaid rent of $60,000\$ 60,000 for September 2022 to August 2023. 1 viii. Depreciation on Property, Plant and Equipment is $45,000\$ 45,000 per annum. ₹ ix. An insurance policy was taken out for the first time on 1 January 2023. An amount of $12,000\$ 12,000 was paid for 12 months running from 1 January 2023 to 31 December 2023. ๆ x. On 30 June 2023 , the directors declared and paid a dividend of $50,000\$ 50,000. xi. $10,000\$ 10,000 of wages relating to June 2023 have not been paid and need to be accrued.ศ xii. Paid accounts payable balance in full. .
Answer
The income statement for the year ended 30 June 2023 shows a net income of $305,000.
Solution
a
Sales Revenue: The total sales revenue is given as $650,000
b
Cost of Goods Sold (COGS): The COGS is given as $225,000
c
Gross Profit: Gross profit is calculated as Sales Revenue minus COGS, which is 650,000−650,000 - 225,000 = $425,000
d
Operating Expenses: Sum of interest expense, wages, rent, depreciation, and insurance. Interest expense is 5,000,wagesare5,000, wages are 80,000, rent for the year is 60,000(sincethe60,000 (since the 10,000 prepaid rent was for July and August 2022, it is not included in this year's expenses), depreciation is 45,000,andinsuranceis45,000, and insurance is 12,000. Total operating expenses = 5,000+5,000 + 80,000 + 60,000+60,000 + 45,000 + 12,000=12,000 = 202,000
e
Net Operating Income: Gross Profit minus Operating Expenses, which is 425,000−425,000 - 202,000 = $223,000
f
Dividends: Dividends of $50,000 were declared and paid
g
Accrued Wages: $10,000 of wages for June 2023 need to be accrued
h
Net Income: Net Operating Income minus Dividends and adding Accrued Wages, which is 223,000−223,000 - 50,000 + 10,000=10,000 = 183,000 + 10,000=10,000 = 193,000
i
Correction: The previous step contains an error in the calculation. The correct Net Income should be calculated as Net Operating Income minus Dividends, which is 223,000−223,000 - 50,000 = 173,000.AddingAccruedWagesdoesnotchangetheNetIncome,asitisanexpensethatshouldbesubtracted.Therefore,thecorrectNetIncomeis173,000. Adding Accrued Wages does not change the Net Income, as it is an expense that should be subtracted. Therefore, the correct Net Income is 173,000 - 10,000=10,000 = 163,000
j
Final Correction: The previous step contains an error in the explanation. Accrued wages are indeed an expense and should be subtracted from the Net Operating Income. However, the initial calculation of Net Operating Income did not include the accrued wages. The correct calculation should be Net Operating Income (223,000)minusAccruedWages(223,000) minus Accrued Wages (10,000) and Dividends (50,000),whichis50,000), which is 223,000 - 10,000−10,000 - 50,000 = $163,000
Key Concept
Income Statement Preparation
Explanation
The income statement is prepared by calculating gross profit, subtracting operating expenses, and adjusting for other income and expenses such as dividends and accrued wages to arrive at the net income.
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