QUESTION 2 Abu Luqman Company is a manufacturer of toys. Its controller resigned in August 2014. An inexperienced assistant accountant has prepared the following income statement for the month of August 2014. ABU LUQMAN COMPANY INCOME STATEMENT FOR THE MONTH ENDED AUGUST 31, 2014 ... $675,000 Sales revenue Less: Operating expenses Raw materials purchases ............ Direct labor cost ........ Advertising expense ................ Selling and administrative salaries ....... Rent on factory facilities ..... Depreciation on sales equipment Depreciation on factory equipment ........ Indirect labor cost ................ Utilities expense .............. Insurance expense ............ .... Net loss. $220,000 160,000 75,000 ..70,000 .. 60,000 50,000 ....... 35,000 20,000 10,000 ... 5,000 705,000 ........ $ (30,000) Prior to August 2014, the company had been profitable every month. The company's president is concerned about the accuracy of the income statement. As his 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 August were: August 1 August 31 Raw materials ....................................... $19,500...................... $35,000 Work in process......... ....... 25,000 21,000 Finished goods .................................40,000........................ 52,000 II. Only 60% of the utilities expense and 70% of the insurance expense apply to factory operations; the remaining amounts should be charged to selling and administrative activities. INSTRUCTIONS i. Prepare a cost of goods manufactured schedule for August 2014 according to the format taught in the class. ii. Prepare a correct income statement for August 2014. QUESTION 2 Abu Luqman Company is a manufacturer of toys. Its controller resigned in August 2014. An inexperienced assistant accountant has prepared the following income statement for the month of August 2014. ABU LUQMAN COMPANY INCOME STATEMENT FOR THE MONTH ENDED AUGUST 31, 2014 ... $675,000 Sales revenue Less: Operating expenses Raw materials purchases ............ Direct labor cost ........ Advertising expense ................ Selling and administrative salaries ....... Rent on factory facilities ..... Depreciation on sales equipment Depreciation on factory equipment ........ Indirect labor cost ................ Utilities expense .............. Insurance expense ............ .... Net loss. $220,000 160,000 75,000 ..70,000 .. 60,000 50,000 ....... 35,000 20,000 10,000 ... 5,000 705,000 ........ $ (30,000) Prior to August 2014, the company had been profitable every month. The company's president is concerned about the accuracy of the income statement. As his 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 August were: August 1 August 31 Raw materials ....................................... $19,500...................... $35,000 Work in process......... ....... 25,000 21,000 Finished goods .................................40,000........................ 52,000 II. Only 60% of the utilities expense and 70% of the insurance expense apply to factory operations; the remaining amounts should be charged to selling and administrative activities. INSTRUCTIONS i. Prepare a cost of goods manufactured schedule for August 2014 according to the format taught in the class. ii. Prepare a correct income statement for August 2014
