Fundamentals of Accounting 1

Financial Statements f or a Merchandising Business

VII. ASSIGNMENT
Name: ______________________________ Course & Section: __________________
Direction/Instruction: From the giv en information below, prepare the income statement for the year
using the functional method. Use another sheet of white paper to show the income statement.
Karla Co. Provide the following information.

Aft er your long journey of reading and accomplishing the module, let us

now challenge your mind by answering the evaluation part of this module.
 Karla Co.
Statement of Comprehensive Income
For the Year ended December 31, 20XX

Sales P7,850,000
Sales Returns and Allowances P140,000
Sales Discount 10,000 (P150,000)
Net Sales P7,700,00

Less: Cost of Goods Sold

Merchandise Inventory, Jan. 1 1,000,000
Add: Purchases P5,250,000
Add: Freight-In 500,000
Total P5,750,000
Less: Purchases Returns & Allowances P150,000
Purchase Discount 100,000 (250,000)
Net Purchases P5,500,000
Merchandise (Goods) Available for sale P6,500,000
Less: Merchandise Inventory, Dec. 31 (1,500,000)
Cost of Goods Sold P5,000,000
Gross Profit P2,700,000
Less: Operating Expenses
Selling Expenses
Freight out P175,000
Salesmen’s Commission 650,000
Depreciation-store equipment 125,000 P950,000
Administrative (General) Expense
Officer’s Salaries P500,000
Depreciation-office equipment 300,000 P800,000
Total Operating Expense P1,750,000
Operating Income P950,000
Other Income, Losses, and Expense
Rental Income P250,000
Loss on sale of equipment (50,000)
Income Tax (250,000)
Dividend Revenue 150,000
Loss on sale of Investment (50,000) P50,000
Net Income P1,000,000