Illustration 1

The following information pertains to the Ledesma Trading:

Transportation In P 170,000 +
Merchandise Inventory
Jan 01 P 1,200,000 +
Dec 31 1,700,000 -
Purchases 4,630,000 +
Purchase Returns and Allowances 160,000 -
Purchase Discount 140,000 -

Gross profit on Sales – 20%

Operating Expense – 10% of gross income

Required: Prepare Income Statement

SALES = 100% 5,000,000
COGS = 80% 4,000,000
GI = 20% 1,000,000

Sales 5,000,000
Less: Cost of goods sold
Beginning inventory 1,200,000
Add Purchases 4,630,000
Less: Purch, Ret. And Disc. 300,000 4,330,000
Transportation In 170,000
Goods available for sale 5,700,000
Less: Ending Inventory 1,700,000 4,000,000
Gross Income 1,000,000
Less: Operating Expenses (10% x 1,000,000) 100,000
NET INCOME 900,000

Illustration 2

Replace the lettered blanks with the appropriate amounts

1 2 3 4 5
Net Sales A = 120,000 D = 180,000 250,000 290,000 400,000
Inventory, 01/01 B = 30,000 50,000 70,000 J = 40,000 120,000
Net Purchases 80,000 E = 110,000 G = 190,000 160,000 390,000
Goods Available 110,000 160,000 H = 260,000 K = 200,000 M = 510,000
for Sale
Inventory, 12/31 40,000 F = 20,000 30,000 70,000 N = 130,000
Cost of Goods C = 70,000 140,000 230,000 L = 130,000 380,000
Sold
Gross Profit 50,000 40,000 I = 20,000 160,000 O = 20,000

Sales – Cost of goods sold (COGS) = Gross income

Beginning inventory + Net Purchases = Goods available for sale (GAFS)
Goods available for sale (GAFS) – Ending Inventory = Cost of Goods sold (COGS)