Question

Accounting Supplies Retailer (ASR) had the following transaction during Year 1:

1. Inventory that had cost $21,000 was sold for $39,900 under terms 2/20, net/30.
2. Customers returned merchandise to ASR five days after the purchase. The merchandise had been sold for a price of $1,000. The merchandise had cost ASR $800.
3. All customers paid their accounts within the discount period.
4. Selling and administrative expenses amounted to $3,990.
5. Interest expense paid amounted to $300.
6. Land that had cost $7,000 was sold for $9,100 cash.
Required
a. Determine the amount of net sales.
b. Prepare a multi-step income statement.

Answer 1

The net sales of ASR are $38,122 after considering returns and discounts. A multi-step income statement shows a net income before taxes of $15,732. From the self-check example, a firm's accounting profit is calculated to be $50,000.

Step-by-step explanation:

To determine the amount of net sales for Accounting Supplies Retailer (ASR), we follow these steps:

1. Start with the sales revenue from the inventory sold: $39,900.
2. Subtract returns: $39,900 - $1,000 = $38,900.
3. Account for the sales discounts (2% of sales within the discount period): $38,900 x 2% = $778.
4. Subtract the sales discounts from the sales revenue post-returns to get net sales: $38,900 - $778 = $38,122.

To prepare a multi-step income statement:

1. Gross Sales: $39,900
2. Less: Sales Returns and Allowances: $1,000
3. Less: Sales Discounts: $778
4. Net Sales: $38,122
5. Cost of Goods Sold (COGS): $21,000 - $800 (return) = $20,200
6. Gross Profit: Net Sales - COGS = $38,122 - $20,200 = $17,922
7. Operating Expenses: Selling and administrative expenses: $3,990
8. Operating Income: Gross Profit - Operating Expenses = $17,922 - $3,990 = $13,932
9. Other Revenues and Gains: Land sale gain = $9,100 - $7,000 = $2,100
10. Other Expenses and Losses: Interest Expense: $300
11. Net Income Before Taxes: Operating Income + Other Revenues and Gains - Other Expenses and Losses = $13,932 + $2,100 - $300 = $15,732
12. Assuming no taxes, Net Income: $15,732

The accounting profit from the self-check question is calculated by subtracting the explicit costs (labor, capital, and materials) from the total revenues: $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.