Question

The following information was drawn from the Year 1 accounting records of Ozark Merchandisers: Inventory that had cost $15,000 was sold for $27,000 under terms 2/20, net/30. Customers returned merchandise to Ozark five days after the purchase. The merchandise had been sold for a price of $660. The merchandise had cost Ozark $400. All customers paid their accounts within the discount period. Selling and administrative expenses amounted to $2,835. Interest expense paid amounted to $200. Land that had cost $6,000 was sold for $6,900 cash. Determine the amount of net sales Prepare a multistep income statement.

1. Where would the interest expense be shown on the statement of cash flows?A. Operating activities.
B. Investing activities.
C. Financing activities.
2. How would the sale of the land be shown on the statement of cash flows?A. The full sales price of the land, $9,250, would be shown as a cash inflow from financing activities on the statement of cash flows.
B. The full sales price of the land, $9,250, would be shown as a cash inflow from investing activities on the statement of cash flows.
C. The full sales price of the land, $9,250, would be shown as a cash inflow from operating activities on the statement of cash flows.

Answer 1

1. A. Operating activities.

2. The sale price of the land should be shown in the investing activities

$25,813.20

Explanation :

As per the data given in the question,

The interest expense is reported in the operating activities section of the cash flow statement

Net sales = Gross sales - Sale returns - Sales discounts

=$27,000 - $660 - $526.80

= $25,813.20

The sales discount is come from

= ($27,000 - $660) × 2%

= $526.80

The preparation of the multi step income statement is presented below:

Ozark Merchandisers

Income Statement

Net sales revenue $25,813.20

Less: Cost of goods sold ($15,000 - $400) $14,600

Gross profit $11,213.20

Less: expenses

Selling and administrative expense $2,835

Income from operations $8,378.2

Add: Gain on sale of land $900 ($6,900 - $6,000)

Less: Interest expense $200

Net income $9,078.20

The sale price of the land i.e $6,900 should be shown in the investing activities as it reflects the cash inflow position

This is the answer and the given options are incorrect