Prepare The Company’s Income Statement For 20x2
Prepare the company’s income statement for 20x2
The following data refers to Huron Corporation for the year 20x2. Sales revenue $2,106,000 Raw-material inventory, 12/31/x1 90,000 Purchases of raw material in 20x2 731,000 Raw-material inventory, 12/31/x2 59,000 Direct-labor cost incurred 473,000 Selling and administrative expenses 268,000 Indirect labor cost incurred 150,000 Property taxes on factory 91,000 Depreciation on factory building 125,000 Income tax expense 25,000 Indirect material used 46,000 Depreciation on factory equipment 60,000 Insurance on factory and equipment 41,000 Utilities for factory 70,000 Work-in-process inventory, 12/31/x1 0 Work-in-process inventory, 12/31/x2 40,000 Finished-goods inventory, 12/31/x1 35,000 Finished-goods inventory, 12/31/x2 40,000 Applied manufacturing overhead 577,000
Paper For Above instruction
Introduction
The annual financial report of Huron Corporation for the year 20x2 provides key insights into its operational efficiency and profitability. By analyzing the income statement, we can understand the company's revenue generation, cost management, and overall financial health. This paper aims to prepare a comprehensive income statement based on the provided data, highlighting the necessary calculations and accounting principles involved.
Income Statement Preparation
To develop the income statement for Huron Corporation, we begin with the sales revenue and deduct the cost of goods sold (COGS) to determine gross profit. Subsequently, operating expenses, including selling, administrative, and other expenses, are subtracted to arrive at operating income. Lastly, taxes are deducted to compute net income.
Sales Revenue
The total sales revenue for 20x2 is reported as $2,106,000, which serves as the top line of the income statement.
Cost of Goods Sold (COGS)
The calculation of COGS is central to the income statement. It involves:
- Beginning raw material inventory: $90,000
- Purchases of raw materials: $731,000
- Ending raw material inventory: $59,000
Using the formula:
\[ \text{Raw Materials Used} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \]
\[
\text{Raw Materials Used} = 90,000 + 731,000 - 59,000 = 762,000
\]
Next, we account for manufacturing costs including direct labor, manufacturing overhead, work-in-process, and finished goods inventories.
Manufacturing Costs
- Direct labor: $473,000
- Manufacturing overhead includes:
- Indirect labor: $150,000
- Property taxes on factory: $91,000
- Depreciation on factory (building and equipment): $125,000 + $60,000 = $185,000
- Indirect materials: $46,000
- Insurance on factory and equipment: $41,000
- Utilities for factory: $70,000
Total manufacturing overhead:
\[ 150,000 + 91,000 + 185,000 + 46,000 + 41,000 + 70,000 = 583,000 \]
- Total manufacturing costs:
\[ \text{Direct materials used} + \text{Direct labor} + \text{Manufacturing overhead} \]
\[ 762,000 + 473,000 + 583,000 = 1,818,000 \]
Work-in-Process (WIP) Inventory
- Beginning WIP: $0
- Ending WIP: $40,000
Cost of Goods Manufactured (COGM)
\[ \text{COGM} = \text{Total manufacturing costs} + \text{Beginning WIP} - \text{Ending WIP} \]
\[ 1,818,000 + 0 - 40,000 = 1,778,000 \]
Finished Goods Inventory
- Beginning: $35,000
- Ending: $40,000
Cost of Goods Sold
\[ \text{COGS} = \text{Beginning Finished Goods} + \text{COGM} - \text{Ending Finished Goods} \]
\[ 35,000 + 1,778,000 - 40,000 = 1,773,000 \]
Gross Profit
\[ \text{Sales Revenue} - \text{COGS} = 2,106,000 - 1,773,000 = 333,000 \]
Operating Expenses
- Selling and administrative expenses: $268,000
Operating Income
\[ \text{Gross Profit} - \text{Operating Expenses} = 333,000 - 268,000 = 65,000 \]
Income Tax Expense
- $25,000
Net Income
\[ \text{Operating Income} - \text{Income Tax} = 65,000 - 25,000 = 40,000 \]
Final Income Statement
```plaintext
HURON CORPORATION
Income Statement
For the Year Ended December 31, 20X2
Sales Revenue..............................................$2,106,000
Cost of Goods Sold.........................................$1,773,000
--------------------------------------------------------------
Gross Profit...............................................$ 333,000
Operating Expenses:
Selling and Administrative Expenses....................$ 268,000
--------------------------------------------------------------
Total Operating Expenses...................................$ 268,000
--------------------------------------------------------------
Operating Income.........................................$ 65,000
Income Tax Expense.......................................$ 25,000
--------------------------------------------------------------
Net Income...............................................$ 40,000
```
Conclusion
This income statement reveals that Huron Corporation earned a net income of $40,000 for the year 20x2. The detailed calculations reflect effective management of manufacturing and operating expenses relative to sales revenue. Understanding the structure of gross profit, operating income, and net income offers insights into the company's financial performance, guiding future strategic decisions.
References
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