(Accounting for by-products) In making frozen hash browns and potato chips, Azzi Potato Inc. generates potato skins as a by-product. It sells the potato skins to restaurants for use in appetizers. The processing and disposal costs associated with the sales of the by-product are $0.10 per pound of potato skins. During May 2006, Azzi Potato produced and sold 90,000 pounds of potato skins for $11,825. In addition, the joint cost for hash browns and potato chips was $30,000. In May, 80 percent of all joint pro¬ duction was sold for $80,000. Nonfactory operating expenses for May were $3,800.

a. Prepare an income statement for Azzi Potato Inc. assuming that by¬ product sales are shown as Other Revenue and the processing and dis¬ posal costs for the by-product are shown as additional cost of goods sold of the joint products.

b. Prepare an income statement for Azzi Potato assuming that the net real¬ izable value of the by-product is shown as other income.

c. Prepare an income statement for Azzi Potato assuming that the net real¬ izable value of the by-product is subtracted from the joint cost of the main products.

d. Would the presentation in (a), (b), or

(c) be most helpful to managers? Why?

 LO1.