Simpson Corporation Has The Following Information As Of Dece

Simpson Corporation Has The Following Information As Of December 31

Simpson Corporation Has The Following Information As Of December 31

Simpson Corporation has the following information as of December 31, the end of its fiscal year: Purchases Discounts $2,850, Merchandise Inventory, December 31 $78,651, Purchases $25,653, Merchandise Inventory, January 1 $82,580, Purchases Returns and Allowances $3,270, Freight In $10,326. Instructions: Using the information presented above, prepare the Cost of Goods Sold section of the income statement. Make an EXCEL file to turn in your work.

Paper For Above instruction

The computation of the Cost of Goods Sold (COGS) is a fundamental part of preparing an income statement, useful for understanding the core profitability of a business. For Simpson Corporation, accurate calculation of COGS involves accounting for beginning inventory, additional purchases made throughout the year, and the adjustments for returns, allowances, discounts, and freight costs. This analysis not only aligns with proper accounting principles but also provides insights into inventory management, pricing strategies, and overall financial performance.

To determine the COGS for Simpson Corporation, we start by calculating the net purchases, which incorporate purchase discounts, returns and allowances, and freight-in costs. The formula for net purchases is as follows:

  • Net Purchases = Purchases - Purchases Discounts - Purchases Returns and Allowances + Freight In

Utilizing the data provided, we substitute the figures accordingly:

  • Purchases = $25,653
  • Purchases Discounts = $2,850
  • Purchases Returns and Allowances = $3,270
  • Freight In = $10,326

Calculating Net Purchases:

Net Purchases = $25,653 - $2,850 - $3,270 + $10,326 = $29,859

Next, determine the Cost of Goods Available for Sale by adding the beginning inventory to net purchases:

  • Beginning Inventory, January 1 = $82,580

thus,

Cost of Goods Available for Sale = Beginning Inventory + Net Purchases = $82,580 + $29,859 = $112,439

The final step is to subtract the ending inventory (as of December 31) to arrive at the Cost of Goods Sold:

Ending Inventory, December 31 = $78,651

Therefore,

Cost of Goods Sold = Cost of Goods Available for Sale - Ending Inventory = $112,439 - $78,651 = $33,788

This figure, $33,788, represents the cost of inventory sold during the fiscal year, providing vital information for calculating gross profit and ultimately net income.

Creating an Excel file with these computations is essential for transparency and accuracy. The spreadsheet would typically include cells for each input value, formulas for intermediate calculations such as net purchases and COGS, and labels for clarity. This organized approach ensures easy verification and presentation of financial data, promoting rigorous accounting practices.

In conclusion, accurate calculation of the Cost of Goods Sold is crucial for proper financial reporting. By systematically incorporating purchases, discounts, returns, freight, and inventories, Simpson Corporation can reliably report its gross margin, which is pivotal for assessing operational efficiency, profitability, and financial health.

References

  • Bragg, S. M. (2018). Accounting Best Practices (2018 Edition). AccountingTools, Inc.
  • Gibson, C. H. (2019). Financial Reporting & Analysis. Cengage Learning.
  • Hansen, D. R. (2017). Managerial Accounting: Creating Value in a Dynamic Business Environment. McGraw-Hill Education.
  • Heisinger, K. & Hoyle, J. (2019). Managerial Accounting. South-Western College Pub.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2020). Intermediate Accounting. Wiley.
  • Financial Accounting Standards Board (FASB). (2022). Accounting Standards Codification (ASC) 330: Inventory.
  • Concepts and Principles of Accounting. (2021). Investopedia. https://www.investopedia.com
  • Foundation of Financial Accounting. (2022). AccountingCoach. https://www.accountingcoach.com
  • International Financial Reporting Standards (IFRS). (2023). IAS 2: Inventories. IFRS Foundation.
  • Accounting for Inventory. (2023). Corporate Finance Institute (CFI). https://corporatefinanceinstitute.com

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