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Unformatted text preview: Dividends = Issuance of stock + Revenues  Expenses  Increase in stockholders' equity Issuance of stock = Increase in stockholders' equity  Revenues + Expenses + Dividends Calculate net sales as follows: Net sales  Cost of goods sold = Gross profit Therefore, to solve for net sales: Net sales = Gross profit + Cost of goods sold = $38,200 + $60,600 = $98,800 Now that net sales are known, sales returns and allowances can be calculated. Calculate sales returns and allowances as follows: Net sales = Sales Sales discounts  Sales returns and allowances Therefore, to solve for sales returns and allowances: Sales returns and allowances = Sales  Sales discounts  Net sales = $105,700  $2,500  $98,800 = $4,400 Calculate selling expenses as follows: Total operating expenses = Selling expenses + General and administrative expenses Therefore, to solve for selling expenses: Selling expenses = Total operating expenses  General and administrative expenses = $18,300  $10,100 = $8,200 Calculate net income as follows: Net income = Gross profit  Total operating expenses = $38,200  $18,300 = $19,900 The income statement for a merchandising business is presented using the "multiple step" format. There are four steps to completing an income statement. Step 1: Compute the net sales: Net Sales = Sales  (Sales Discounts + Sales Returns and Allowances) = $92,200  ($4,700 + $4,200) = $83,300. Step 2: Compute the gross profit. Gross Profit is the total profit from sales before considering operating expenses. Cost of goods sold (COGS) is an expense that represents the cost of all merchandise sold during the current accounting cycle. Cost of goods sold is subtracted from net sales to compute gross profit: Gross Profit = Net Sales  Cost of Goods Sold = $83,300  $51,600 = $31,700. Step 3: Compute the total operating expenses. Total operating expenses are expenses incurred during the accounting cycle to support the selling of inventory (selling expenses) and the operations of the company as a whole (general and administrative expenses). Compute total operating expenses: Total Operating Expenses = Selling Expenses + General and Administrative Expenses = $10,900 + $7,800 = $18,700. Step 4: Compute Net Income: Net Income = Gross Profit  Total Operating Expenses = $31,700  $18,700 = $13,000. Step 3: Complete the stockholders' equity section of the balance sheet. Stockholders' equity equals Capital Stock plus ending retained earnings . Since Capital Stock is given in this problem, we must calculate ending retained earnings. There are two ways to compute ending retained earnings: (a) The basic accounting equation states that Assets = Liabilities + Stockholders' equity. To calculate stockholders' equity, we restate the equation as follows: Stockholders' equity = Assets  Liabilities = $193,200  $44,000 = $149,200 Stockholders' equity is composed of two parts: Capital Stock and Retained Earnings....
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This note was uploaded on 03/28/2011 for the course ACCT 349 taught by Professor Goyal during the Spring '09 term at University of Phoenix.
 Spring '09
 GOYAL
 Financial Accounting, Dividends, Revenue

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