12. On January 1,2014, ABC corporation had inventory of 50,000. At December 31, 2014, ABC corporation had the ff account balances.
Freight -in =4,000
Purchases =509,000
purchase discounts =6,000
purchase returns and allowances =8,000
sales revenue =840,000
sales discounts =7,000
sales returns and allowances =11,000
At December 31,2014, ABC determines that its ending inventory is 60,000.
Instructions.
A, compute ABC's 2014 Gross profit.
A, compute ABC's 2014 Operating expense if net income is 130,000 and there are no non operating activities.
To compute ABC's 2014 Gross profit, we need to use the formula:
Gross profit = Sales revenue - Cost of Goods Sold
First, let's calculate the Cost of Goods Sold (COGS):
COGS = Beginning inventory + Purchases + Freight-in - Purchase discounts - Purchase returns and allowances
= 50,000 + 509,000 + 4,000 - 6,000 - 8,000
= 549,000
Now, we can calculate the Gross profit:
Gross profit = Sales revenue - COGS
= 840,000 - 549,000
= 291,000
Therefore, ABC's 2014 Gross profit is 291,000.
Next, to compute ABC's 2014 Operating expense, we can use the formula:
Operating expense = Gross profit - Net income if there are no non-operating activities
Since the net income is given as 130,000, we can substitute that into the formula:
Operating expense = Gross profit - Net income
= 291,000 - 130,000
= 161,000
Therefore, ABC's 2014 Operating expense is 161,000.