E5-11 a) Compute Payton’s gross profit. GROSS PROFIT = 900,00 – 540,000 = $ 360,000 ______________________________________ b) Compute the gross profit rate. Why is this rate computed by financial statement users? (360,000/900,000)/100 = 4/10of 100 = 40% This is known as the GROSS PROFIT MARGIN. ______________________________________ c) What is Payton’s income from operations and net income? 1)Income from Operations = 360,000 – 230,000 = $130,000. 2)Net Income = 130,000 – 11,000 = $119,000 ______________________________________ ) If Payton prepared a single-step income statement, what amount would it report for net income? NET INCOME = $119,000. _____________________________________ e) In what section of its classified balance sheet should Payton report merchandise inventory? Inventory is reported as part of the CURRENT ASSETS. Comment on ROLCAM’s Answer: 1000 characters remaining Submit Comment E6-2 Unadjusted Ending inventory $732,570 1. Included in the company’s count were goods with a cost of $257,200 that the company is holding on consignment.

The goods belong to Superior Corporation. ($257,200) 2. The physical count did not include goods purchased by Strawser with a cost of $45,030 that were shipped FOB destination on December 28 and did not arrive at Strawser’s warehouse until January 3. + $45,030 3. Included in the inventory account was $17,880 of office supplies that were stored in the warehouse and were to be used by the company’s supervisors and managers during the coming year. ($17,880) 4.

The company received an order on December 29 that was boxed and was sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $40,950 and a cost of $32,730. The goods were not included in the count because they were sitting on the dock. + $32,730 5. On December 29 Strawser shipped goods with a selling price of $81,290 and a cost of $61,350 to District Sales Corporation FOB shipping point.

The goods arrived on January 3. District Sales had only ordered goods with a selling price of $11,900 and a cost of $8,510. However, a sales manager at Strawser had authorized the shipment and said that if District wanted to ship the goods back next week, it could. + $52,840 6. Included in the count was $38,400 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Strawser’s products, it was unlikely that these obsolete parts had any other use.

However, management would prefer to keep them on the books at cost, “since that is what we paid for them, after all. ” ($38,400) Correct inventory : $549,690 E6-7 Best Answer – Chosen by Voters FIFO LIFO Average-Cost Ending Inventory $ 10400 $ 8000 $_9600___ Cost of goods sold $ 25600 $ 28000 $_26400__ Which cost flow method would result in the highest net income? it depends on how fast your inventory moves and the cost of that inventory. bascially revenue – cogs = income so to get a high net income you would want low cogs which is usually FIFO and/or average cost.