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Mountain Sports Ltd. is a small, Lethbridge-based company located on a major street in the west end. This retail store operation is an Alberta Corporation

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Mountain Sports Ltd. is a small, Lethbridge-based company located on a major street in the west end. This retail store operation is an Alberta Corporation with 20,000 outstanding common shares divided equally amongst five owners. Lisa Marconi, an owner, is the Company President while Jeff Peterson, another owner, holds the position of Marketing Manager. The company was formed in 2001. Mountain Sports carries a limited line of products and services that can be divided into four segments: 1. Cross-country ski packages (skis, boots, and poles) 2. Mountain bicycles 3. Accessories 4. Repair and service departmentMountain Sports Ltd. Income Statement For the Year Ended December 31, 2020 Sales 1,940,401 Cost of Goods Sold 826,372 Gross profit on sales 1,114,029 Operating expenses: (See note 1) Advertising (see note 7c) 123,040 Depreciation 21,341 Property taxes 32,000 Rent (see note 1b) 134,808 Repairs & service expenses 94,118 Salaries and commissions 320,708 Utilities 100,000 Total operating expenses 826,015 Operating income 288,014 Interest expenses (See note 2) 6,413 Income before taxes 281,601 Income taxes (see note 3) 78,849 Net income 202,7531. The following information relates to operating expenses: a) Employees are paid fixed monthly salaries supplemented by a 3% commission on all sales except for the Repair & Service department's sales. b) The rent is fixed at $8,000 per month plus 2% of sales. c) Utilities are fixed costs, even though they will increase significantly next year. d) Repairs and Service expense varies with sales activity. e) Depreciation and property taxes are fixed costs. f) Advertising budgets are committed to at the beginning of each year. g) Cost of goods sold always varies with sales. 2. The interest expense represents the 4.5% interest charge on the outstanding shareholders' loan. 3. Income taxes are calculated at 28% of income before taxes. 4. Accounts receivable are generated through a small number of large sales to sports rental operations and school boards. Uncollectible accounts have not been a problem and are negligible.5. Because much of the merchandise inventory is produced in Asia, large orders are placed several months prior to peak seasons. Ordering well in advance saves ordering and shipping costs. 6. Accounts payable to suppliers are promptly paid within 30 days. 7. The following information relates to the Income Statement Segmented by Product Line: a) Rent, utilities, depreciation, and property taxes have been allocated equally amongst the 4 product lines. However, if any one of the product lines was eliminated, these costs will remain. b) Details of salaries and commissions follow (payroll fringe benefits are included): i. 3% sales commissions were paid on all sales except for the sales of the Repair & Service department. ii. The two (2) managers are paid $38,000 each per year. Both are responsible for the company as a whole.iii. Besides sales commissions, the four [4] sales clerks are paid $2,500 each per month. They sell all 3 product lines (skis, hikes and accessories]. If any product line is eliminated, the sales clerks will still remain. iv. During the year, the two [2] Repair E: Service technicians combined were paid a total salary of $?0,000 for the whole year and are allocated entirely to the RcS department. Thus, if the department was discontinued, the technicians would not he required. c] Advertising Mountain SporE Ltd. spent advertising on product lines as follows: (-14 For the company as a whole 5 25,000 For the individual product lines: Cross Country Skis '3 33,190 Mountain Bikes 45,500 3 Accessories 5,?00 Repair E: Service 3,550 93,040 Total Advertising I.Cost $123,040 [Ll n. Note: you will observe that the amounts on the income statement differfor the individual product lines due to the allocation of $25,000 in general company advertising cosh

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