Crafty Company manufactures and sells printers. On the last day of the first quarter of the year, Crafty contrives with Tricky Company to sell 100 printers to Tricky Company for \($1,000\) each. In terms of Crafty’s agreement with Tricky, Tricky will sell those 100 printers back to Crafty at the same price of \($1,000\) each in the second quarter of the year. The cost of each printer that Crafty manufactures is \($600.\) Crafty allocates the full cost of the printers that it purchases from Tricky to inventory.

Examine the following extract from Crafty’s income statement, excluding the contrived round-trip transaction:

Assume that Crafty Company goes ahead with the contrived round-trip transaction with Tricky Company. Prepare Crafty’s income statement for the first quarter with the round-trip transaction included. Ignore taxes.

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Income Statement Extract: Crafty Co. First Quarter Sales $200,000 Cost of goods sold 120,000 Gross margin 80,000 Selling and administrative expenses 30,000