Question

Prepare the cost of goods sold section of the income statement at December 31, 2017, for each company in Merchandising Business and Manufacturing Business.

Shown here are annual financial data at December 31, 2017, taken from two different companies.
Music World Retail Wave-Board Manufacturing Beginning inventory Merchandise $200,000Pinished goods $500,000 Cost of purchases 300,000Cost of goods manufactured 875,000 Ending inventory Merchandise 175,000Finished goods 225,000
Required: 1. Prepare the cost of goods sold section of the income statement at December 31, 2017, for each company in Merchandising Business and Manufacturing Business.

Answer 1

The cost of goods sold for Music World Retail, a merchandising business, is $325,000, calculated by subtracting ending inventory from the sum of beginning inventory and cost of purchases. For Wave-Board Manufacturing, a manufacturing business, the cost of goods sold is $1,150,000, calculated by subtracting ending inventory of finished goods from the sum of beginning inventory of finished goods and cost of goods manufactured.

Step-by-step explanation:

Cost of Goods Sold for Merchandising and Manufacturing Businesses

To prepare the cost of goods sold (COGS) section of the income statement for the Music World Retail (a merchandising business) and Wave-Board Manufacturing (a manufacturing business), we must first calculate the COGS for both companies using the data provided for the year ending on December 31, 2017.

For the Music World Retail:

Beginning Inventory: $200,000

+ Cost of Purchases: $300,000

- Ending Inventory: $175,000

= Cost of Goods Sold: $325,000

For the Wave-Board Manufacturing:

Beginning Inventory (Finished Goods): $500,000

+ Cost of Goods Manufactured: $875,000

- Ending Inventory (Finished Goods): $225,000

= Cost of Goods Sold: $1,150,000

The calculated COGS are essential for both companies to report accurate financial statements, and they reflect the direct costs attributable to goods produced and sold by the manufacturing business, and to goods purchased and sold by the merchandising business.

Answer 2

Answer: (a) $325,000

(b) $1,150,000

Step-by-step explanation:

(a) For Music world retail:

Cost of goods sold = Goods available for sale - Ending merchandise inventory

= (Beginning merchandise inventory + Cost of purchases) - Ending merchandise inventory

= ($200,000 + $300,000) - $175,000

= $500,000 - $175,000

= $325,000

(b) For Wave-Board Manufacturing:

Cost of goods sold = Goods available for sale - Ending finished goods inventory

= (Beginning finished goods inventory + Cost of goods manufactured) - Ending finished goods inventory

= ($500,000 + $875,000) - $225,000

= $1,150,000