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The following are selected ledger accounts of Spock Corporation on December 31, 2017.

Cash \( 185,000 Salaries and wages expense (sales) \)284,000

Inventory 535,000 Salaries and wages expense (office) 346,000

Sales revenue 4,275,000 Purchase returns 15,000

Unearned sales revenue 117,000 Sales returns and allowances 79,000

Purchases 2,786,000 Freight-in 72,000

Sales discounts 34,000 Accounts receivable 142,500

Purchase discounts 27,000 Sales commissions 83,000

Selling expenses 69,000 Telephone and Internet expense (sales) 17,000

Accounting and legal services 33,000 Utilities expense (office) 32,000

Insurance expense (office) 24,000 Miscellaneous office expenses 8,000

Advertising expense 54,000 Rent revenue 240,000

Delivery expense 93,000 Casualty loss (before tax) 70,000

Depreciation expense (office equipment) 48,000 Depreciation expense (sales equipment) 36,000

Common stock (\(10 par) 900,000 Interest expense 176,000

Spock鈥檚 effective tax rate on all items is 34%. A physical inventory indicates that the ending inventory is \)686,000.

Instructions

Prepare a condensed 2017 income statement for Spock Corporation.

Step by step solution

01

Meaning of Purchase Discounts

Purchase discounts mean an offer given to the buyer to lower the payment amount if the payment is made within a specific time. It helps the seller receive payments from their customers sooner.

02

Preparing Condensed Income statement of Spock Corporation

Spock Corporation
Income Statement
For the Year Ended on December 31, 2017
Revenue		$4,275,000
Sales
Less: Sales Discount	34,000
Sales Returns and Allowances	79,000	113,000
Net Sales Revenue		4,162,000
Cost of Goods Sold
Inventory	535,000
Add: Purchases	2,786,000
Freight-in	72,000
Less: Purchase Discount	27,000
Purchase Return	15,000
Cost of Goods purchased	2,816,000
Cost of Goods available for sale	3,351,000
Less: Inventory on December 31	686,000
Cost of Goods sold		2,665,000
Gross Profits on Sale		1,497,000
Other operating revenues and gains
Rent Revenue	240,000
Total Revenues		1,737,000
Other operating expenses
Selling and Distribution Expenses
Selling Expenses	69,000
Advertising Expenses	54,000
Delivery Expenses	93,000
Depreciation Expenses (Sale equipment)	36,000
Salary and wages	284,000
Sales commission	83,000
Telephone and Internet Expenses	17,000
General and Administrative Expenses
Accounting and Legal Expenses	33,000
Insurance Expenses	24,000
Depreciation Expenses	48,000
Salary and Wages expenses	346,000
Utility Expenses	32,000
Miscellaneous Expense	8,000
Total Expenses		1,127,000
Operating Income		610,000
Less: Casualty Loss	70,000
Interest	176,000	246,000
Income before income tax		364,000
Less: Income tax expense		123,760
Net Income		$240,240

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