1. Compute (a) the cost of goods purchased and (b) the cost of goods sold. 2. Prepare the Income Statement for 2017.

The following data are for Marvin Department Store. The account balances (in thousands) are for 2017.

Marketing and advertising costs $24,000
Merchandise inventory, January 1, 2011 45,000
Shipping of merchandise to customers 2,000
Building depreciation $4,200
Purchases 260,000
General and administrative costs 32,000
Merchandise inventory, December 31, 2011 52,000
Merchandise freight-in 10,000
Purchase returns and allowances 11,000
Purchase discounts 9,000
Revenues 320,000

Answer and Explanation:

1. The computation is shown below:

(a) For the cost of goods purchased

Purchases                                      $260,000

Add: Merchandise freight-in        $10,000

Less: Purchase returns

and allowances                       $(11,000)

Purchase discounts               $(9,000)

Cost of goods purchased         $250,000

(b) For the cost of goods sold

Merchandise inventory, January 1, 2011     $45,000

Add: Cost of goods purchased             $250,000

Goods available for sale                     $2,95,000

Less: Merchandise inventory,

December 31, 2011$                                  ($52,000)

Cost of goods sold                               $243,000

2. Now the preparation of the income statement is presented below:

Marvin department store

Income statement

year ended December 31, 2017

(In thousands)

Revenues                                           $320,000

Less:

Cost of good sold (see above)         ($243,000)

Gross Margin                                       $77,000        

Less:

Operating costs:  

Marketing and advertising cost         ($24,000)

Shipping of merchandise to customers (2,000)

Building depreciation                              ($4,200)

General and administrative costs          ($32,000)

Total operating cost                              ($62,200)

Operating income                                 $14,800

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