Problem 1-5A (Video)

Empire Company is a manufacturer of smart phones. Its controller resigned in October 2020. An inexperienced assistant accountant has prepared the following income statement for the month of October 2020.

Prior to October 2020, the company had been profitable every month. The companys president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired additional information as follows. 1. Inventory balances at the beginning and end of October were:

2. Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

$793,000 EMPIRE COMPANY Income Statement For the Month Ended October 31, 2020 Sales revenue Less: Operating expenses Raw materials purchases $263,000 Direct labor cost 188,000 Advertising expense 91,000 Selling and administrative salaries 76,000 Rent on factory facilities 61,000 Depreciation on sales equipment 44,000 Depreciation on factory equipment 32,100 Indirect labor cost 28,100 Utilities expense 11,000 Insurance expense 8,100 802,300 $(9,300) Net loss October 31 Raw materials Work in process Finished goods October 1 $19,000 19,000 29,000 $35,000 14,000 53,000 Prepare a schedule of cost of goods manufactured for October 2020. EMPIRE COMPANY Cost of Goods Manufactured Schedule 7 $ Prepare a correct income statement for October 2020. EMPIRE COMPANY Income Statement $ $ 7 7 $