Income Statement
Company Name
For the Time Period Ending Date
Net sales
- Cost of goods sold
Gross profit
- Operating expenses
Operating profit
- Interest expense
Profit before taxes
- Taxes
Net income
Net sales = Gross sales - (Returns and Allowances)
Cost of goods sold = Beginning inventory + Materials
purchases - Ending inventory
The Five Different Types of Accounts
In Assets, Liabilities, Equity, Revenue, & Expenses, we discuss these
accounts in detail:
Assets: items of value the company owns. Examples: machinery,
cash.
Liabilities: money the company owes to others. Examples: vehicle
loan, mortgage.
Equity: the portion of assets the company owns outright with no debt.
Revenue or Income: money earned from sales, plus dividends or
interest on securities.
Expenses: items or services needed to run the business. Examples:
rent, advertising.
In 2003, Burghoff, Inc. (a hardware retail company) sold 10,000
units of its product at an average price of 400 per unit. The
company reported estimated Returns and allowances in 2003
of 200,000. Burghoff actually purchased 11,000 units of its
product from its manufacturer in 2003 at an average cost of
300 per unit. Burghoff began 2003 with 900 units of its product
in inventory (carried at an average cost of 300 per unit).
Operating expenses (excluding depreciation) for Burghoff, Inc.
in 2003 were 400,000 and depreciation expense was 100,000.
Burghoff had 2,000,000 in debt outstanding throughout all of
2003. This debt carried an average interest rate of 10 percent.
Finally, Burghoff’s tax rate was 40 percent. Burghoff’s fiscal
year runs from January 1 through December 31.
Given this information, construct Burghoff’s 2003 multi-step
income statement.
What was Burghoff’s 2003 ending inventory balance?
Answer:
Income Statement
Burghoff, Incorporated
For the 12 month period Ending December 31, 2003
Net sales $3,800,000
Cost of goods sold 3,000,000
Gross profit 800,000
Operating expenses (excl. depreciation) 400,000
Depreciation expense 100,000
Operating income 300,000
Interest expense 200,000
EBT 100,000
Taxes 40,000
Net income 60,000
Notes: Net sales = Gross sales – Returns and Allowances = (10,000) ($400) – 200,000.
Cost of goods sold = # units sold x Cost per unit = (10,000) ($300).
Interest expense = (Debt outstanding) (Average interest rate) = ($2,000,000) (.10).
Taxes = (EBT) (Tax rate) = ($100,000) (.40).
What was Burghoff’s 2003 ending inventory balance (in both units and in dollars)?
Answer: 1,900 units and $570,000
Prepare a multi-step income statement for the Appully Company (a
clothing retailer) for the year ending December 31, 2003 given the
information below:
Advertising expenditures 68,000
Beginning inventory 256,000
Depreciation 78,000
Ending inventory 248,000
Gross Sales 3,210,000
Interest expense 64,000
Lease payments 52,000
Management salaries 240,000
Materials purchases 2,425,000
R&D expenditures 35,000
Repairs and maintenance costs 22,000
Returns and allowances 48,000
Taxes 51,000
ANSWER:
Income Statement
The Appully Company
For the 12 month period Ending December 31, 2003
Net sales 3,162,000
Cost of goods sold (2,433,000)
Gross profit 729,000
Operating expense (excluding depreciation) 417,000
Depreciation 78,000
Operating profit 234,000
Interest expense 64,000
Earnings before taxes 170,000
Taxes 51,000
Net income 119,000
