Problem B 0506 Partial Information Follows About Net Sales

Problem B 0506partial Information Follows About Net Sales Net Purcha

Problem B 0506partial Information Follows About Net Sales Net Purcha

Analyze the provided financial data for Slabaugh Company, which includes information on net sales, net purchases, cost of goods sold, gross profit, total expenses, and net income. Compute all the missing financial values based on the given data, applying appropriate accounting formulas.

Specifically, determine the missing values for sales discounts, sales returns and allowances, net purchases, cost of goods sold, gross profit, and net income. Use the indicated relationships among these figures to solve the problem systematically, employing methods such as substitution and algebraic calculations. Additionally, consider potential uses of solver functions or goal seek in spreadsheet analysis to verify your solutions efficiently.

Paper For Above instruction

Financial analysis is fundamental in understanding a company's performance and profitability. Proper computation of financial metrics like net sales, gross profit, and net income allows stakeholders to evaluate operational efficiency and profitability margins. In this context, the problem involves completing a set of financial statements for Slabaugh Company based on partial data, which requires a comprehensive understanding of the relationships among sales, costs, expenses, and income.

To start, the known figures include gross sales of $800,000, sales discounts of $20,000, and net sales of $735,000. The missing sales returns and allowances can be computed by subtracting the sum of sales discounts from the difference between gross sales and net sales:

Sales returns and allowances = Gross sales - (Net sales + Sales discounts) = $800,000 - ($735,000 + $20,000) = $800,000 - $755,000 = $45,000

Next, to determine the net Purchases, we have the Purchases amount at $400,000, Freight-in at $20,000, and Purchase discounts and Purchase returns and allowances. The purchase discount is not explicitly given; however, given the net purchases as $413,500, we can work backward to find the purchase discounts.

Net purchases are calculated as:

Purchases + Freight-in - Purchase discounts - Purchase returns and allowances = Net purchases

Plugging in the known values:

Purchases + $20,000 - Purchase discounts - $2,500 = $413,500

Since Purchases is given as $400,000, the calculation becomes:

$400,000 + $20,000 - Purchase discounts - $2,500 = $413,500

Simplify:

$417,500 - Purchase discounts = $413,500

Thus,

Purchase discounts = $417,500 - $413,500 = $4,000

Moving on, we calculate the Cost of Goods Sold (COGS). The formula is:

Beginning inventory + Net purchases - Ending inventory = COGS

Given beginning inventory of $85,400 and ending inventory of $74,500, the calculation is:

COGS = $85,400 + $413,500 - $74,500 = $424,400

This figure will now be used to determine gross profit:

Gross profit = Net sales - COGS = $735,000 - $424,400 = $310,600

Next, total expenses sum to $242,200, including rent, salaries, utilities, freight-out, and other expenses. Therefore, net income can be calculated as:

Net income = Gross profit - Total expenses = $310,600 - $242,200 = $68,400

In conclusion, the missing financial figures are as follows:

  • Sales returns and allowances: $45,000
  • Purchase discounts: $4,000
  • Cost of Goods Sold: $424,400
  • Gross profit: $310,600
  • Net income: $68,400

This problem exemplifies the importance of understanding the relationships among various financial statement components. The ability to compute missing data points allows accountants and financial analysts to prepare accurate financial reports, assess operational efficiency, and make informed business decisions. The use of tools like spreadsheet functions (solver, goal seek) can streamline these calculations and ensure accuracy, especially in more complex scenarios with multiple unknowns.

References

  • Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
  • Gibson, C. H. (2019). Financial Reporting and Analysis. South-Western College Publishing.
  • Higgins, R. C. (2014). Analysis for Financial Management. McGraw-Hill Education.
  • Ross, S. A., Westerfield, R., & Jaffe, J. (2019). Corporate Finance. McGraw-Hill Education.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting. Wiley.
  • Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2017). Financial Statement Analysis. Pearson.
  • Leone, A. J., & Leone, E. (2010). Managerial Accounting. Pearson Education.
  • Penman, S. H. (2013). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
  • Stickney, C. P., Brown, P., & Wahlen, J. (2018). Financial Reporting, Financial Statement Analysis, and Valuation. Cengage Learning.
  • Penman, S. H. (2012). Financial Statement Analysis and Valuation. McGraw-Hill.

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