Preparation of Financial Statements - Based on the following information, prepare an internal Use Only Income Statement for the Decadent Desserts Bakery for the month onded October 31. 2020 Assume the company Usos a periodic inventory system and ACTUAL costing in other words, they do NOT un an estimated OH rate] Prepare a CGM Schedule and a multi-step Income Statement Ignore Income Tax 101 Decadent Desserts Bakery Trial Balance - Pre-Closing On October 31, 2020 Acct. # Account Name Cash 102 Accounts Receivable 103 Direct Materials Inventory Beginning 104 Work in Process Inventory Beginning 105 Finished Goods Inventory Beginning 151 Equipment 152 Accum. Depr.-Equipment 153 Building 154 Accum Depr.-Building 155 Land 201 Accounts Payable 251 Notes Payable (Long-term) 252 Bonds Payable 301 Common Stock 305 Treasury Stock 306 Retained Earnings 401 Sales Revenue 403 Sales Returns & Allowances 501 Direct Materials - Purchases (net of Returns) 504 Freight-in 550 Direct Labor 581 Indirect Labor 582 Property Insurance (for the Factory Building) 584 Security Service (to patrol the Factory) 601 Sales Salaries Expense 602 Freight-out (on products we shipped) 603 Sales Commissions Exp. (to our salespeople) 701 Administrative Salaries Expense (CEO, VP, etc.) 702 Utilities Expense - Headquarters Building 707 Depreciation Expense - Headquarters TOTALS DEBIT CREDIT $17.000 3,500 3,000 1.000 1,500 15,000 1.000 106,000 10.000 296,000 9,000 15,000 115,000 120.000 60.000 101,000 420,000 30.000 26,000 1.000 50,000 6,000 4,000 10,000 20,000 2,000 21,000 55,000 39,000 24,000 $791.000 $791.000 GIVEN: Ending Inventories (per physical count, 10/31/20): This count is done "periodically" Direct Materials: $9,000 Work in Process: $6,000 Finished Goods: $7,500 SOLUTION Decadent Desserts Bakery Cost of Goods Manufactured Schedule Month ended 10/31/2020 Direct Materials: Beginning inventory plus: Materials Purchases, not plus: Freight in Total Materials Available Minus: Ending Inventory. Materials Direct Materials Used Direct Labor Manufacturing Overhead: Indirect Labor Property Insurance (Factory) Security Service (patrols Factory) Total Manufacturing Overhead Total Current Manufacturing Costs Plus: Beg. Inventory. WIP Minus: Ending Inventory, WIP Cost of Goods Manufactured S86.000 INSTRUCTOR'S NOTES: #1 - The format in the textbook places "Beg. Inv. of WIP" on the first line of the CGM Schedule and deducts the "End. Inv. of WIP" at the bottom. That is an acceptable format along with the format presented here - use whichever you prefer- and know that both are OK #2 - This company must utilize a "periodic inventory system because the CGM is having to be calculated on this schedule. If the company was using a "perpetual" inventory system, the costs would flow from DM, Payroll Payable, and OH into Finished Goods and on into a CGS account. There would be no need for this schedule. We will discuss this more in class. INTERNAL USE ONLY Decadent Desserts Bakery Income Statement Month ended 10/31/2020 Sales Revenue less: Sales Returns Net Sales Cost of Goods Sold: Beg. Inventory, Finished Goods + Cost of Goods Manufactured Finished Goods Available for Sale less: End. Inventory. Finished Goods Cost of Goods Sold Gross Profit (aka, "gross margin") Operating Expenses: Selling Expenses: Sales Salaries Expense Freight-out Sales Commissions Expense Total Selling Expenses Gen/Admin. Expenses: Administrative Salaries Utilities Expense (HQ) Deprec. Expense (HQ) Total Gen/Adm Expenses Total Operating Expenses Operating Income $149,000 INSTRUCTOR'S NOTES: #1 - Notice that there are no Income Taxes or Interest Expense, Misc. Income, etc. shown above. This is an INTERNAL Income Statement and generally, focuses on "operations." #2 - The phrase "multi-step" does not appear anywhere on the Income Statement. That references a format and is NOT part of the heading
