01. In 2003, Alhmad& CO. (ahardware retail company) sold 100its product at an av
ID: 2599611 • Letter: 0
Question
01. In 2003, Alhmad& CO. (ahardware retail company) sold 100its product at an average price of S400 per unit. The company reported estimated Returns and allowances in 2003 of $200,000. Ahmad & CO purchases of its product from its manufacturer In 2003 at an average cost of $300 per unit. Ahmad & CO. began 2003 with 900 units of is product in inventory (carried at an average cost of s300 per unit). Operating expenses (excluding depreciation) for Ahmad & co. 2003 were $400,00o and depreciation expense was $100,000.Amad& Co. had S2,000,000 in debt outstanding throughout all of 2003. This debt carried an average interest rate of 10 percent. Finally, Ahmad & Co. s tax rate was 40 percent. Ahmad & CO.'s fiscal year runs from January 1 through December 31. Given this information, construct Ahmad & Co.'s 2003 multi-step income statement. What was Ahmad & co.'s 2003 ending inventory ble(in both units and in dollars)?Explanation / Answer
Income Statement
For the year ended December 31, 2003
Sales
$4000000
Less: Returns & Allowance
($200000)
Net sales revenue
$3800000
Less:
Cost of goods sold (COGS)
($3180000)
Gross Margin
$620000
Less:
Operating expense
($400000)
Depreciation expense
($100000)
Operating income
$120000
Less: Interest expense
($200000)
Net loss
($80000)
Less: Tax @ 40%
Nil
Net Loss after tax
($80000)
Working note;
1. Calculation of ending inventory;
Opening inventory 300 units + Purchases 11000 units – Sale 10000 units) =
1300 units
Ending inventory in Dollars (1300 units * $300) = $390000
2. Cost of goods sold (COGS) is calculated as follow;
Opening inventory (900 * 300)…………$270000
Add: purchase (11000 * 300)…………..$3300000
Less: Ending inventory (1300 * 300)……$390000
Thus cost of goods sold (COGS) = $3180000
Income Statement
For the year ended December 31, 2003
Sales
$4000000
Less: Returns & Allowance
($200000)
Net sales revenue
$3800000
Less:
Cost of goods sold (COGS)
($3180000)
Gross Margin
$620000
Less:
Operating expense
($400000)
Depreciation expense
($100000)
Operating income
$120000
Less: Interest expense
($200000)
Net loss
($80000)
Less: Tax @ 40%
Nil
Net Loss after tax
($80000)
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