Prepare an income statement for the division using the

Reference no: EM13597171

Assume you work as an accountant in the merchandising division of a large public company that makes and sells athletic clothing. To encourage the merchandising division to earn as much profit on each individual sale as possible, the division manager's pay is based, in part, on the division's gross profit percentage. To encourage control over the division's operating expenses, the manager's pay also is based on the division's net income.

You are currently preparing the division's financial statements. The division had a good year, with sales of $100,000, cost of goods sold of $50,000, sales returns and allowances of $6,000, sales discounts of $4,000, and other selling expenses of $30,000. (Assume the division does not report income taxes.) The division manager stresses that "it would be in you personal interest" to classify sales returns and allowances and sales discounts as selling expenses rather than as conta-revenues on the division's income statement. He justifies this "friendly advice" by saying that he's not asking you to fake the numbers-he just believes that those items are more accurately reported as expenses. Plus, he claims, being a division of a larger company, you don;t have to follow GAAP.

REQUIRED:
1. Prepare an income statement for the division using the classifications shown in this chapter. Using this income statement, calculate the division's gross profit percentage.

2. What reason (other than reporting "more accurately") do you think is motivating the manager's advice to you?

Reference no: EM13597171

Questions Cloud

During fiscal year had net income of 100000 and 50000 : during fiscal year had net income of 100000 and 50000 shares of cs and 10000 shares of ps outstanding. declared and

Calculate the cost of the ending inventory and the cost of : yount company reports the following for the month of june. date explanation units unit cost total cost june 1 inventory

A tank contains both nitrogen and hydrogen gas if the : a tank contains both nitrogen and hydrogen gas. if the partial pressures are 190 mm hg and 303 mm hg respectively what

Assume that in 2009 sales increase by 10 percent and cost : one size fits all casket co income statement for 2008 is as

Prepare an income statement for the division using the : assume you work as an accountant in the merchandising division of a large public company that makes and sells athletic

Compute ending inventory at september 30 using fifo lifo : boarders sells a snowboard xpert that is popular with snowboard enthusiasts. below is information relating to boarders

Listor company made 3800 bookshelves using 23320 board feet : listor company made 3800 bookshelves using 23320 board feet of wood costing 290000. the companys direct materials

A reaction mixture initially contains 050 m ch4 and 075 m : consider the following reactionch4g 2 h2sg ----gt cs2g 4 h2ga reaction mixture initially contains 0.50 m ch4 and 0.75

On january 1st susan and roman formed a partnership called : on january 1st susan and roman formed a partnership called research consultants. each partner invested 50000 cash on

User Account

All Pages