Problem 1: Income Statement The financial controller for Red Rider Sports Ltd was stranded in the Philippines because of a recent typhoon. Their new financial accountant had to prepare financial statements for the fiscal year ending 30 June 2014 for management. Below is a “draft” of the income statement prepared by the financial accountant. Red Rider Sports Ltd Income Statement Sales Expenditures and Costs Cost of Goods Sold Advertising Expense Bank Service charges Auto & Truck Expense Salaries & Wages Expense Credit Card Discount Expense Depreciation Expense Dividends Paid Telephone Expense Travel Expense Utilities Expense Office Expense General Liability Insurance Purchase Discounts Rent Expense Repairs & Maintenance Supplies Expense Sales Returns Sales Discounts Total Expenses and Costs Profit from Operations 2,550,500 1,020,200 127,000 2,200 6,200 850,000 49,000 10,000 25,000 7,200 5,500 16,800 7,800 14,200 40,800 60,000 4,800 2,400 76,000 100,500 2,425,600 124,900 The individual amounts above are correct; however, some of the amounts are not reported correctly. The income statement was not acceptable per management and they sent the draft to you for editing. Required: a. Prepare an appropriate income statement for the year ending 30 June 2014. Include percentages for each line item based on gross sale.. Marks: 1 b. Compare your income statement with the draft and explain the differences to management. Marks: 2 c. If Red Rider Sports Ltd credit card fee is normally 2.2% credit card sales, what were the dollar amounts of their (1) cash sales and (2) their credit card sales? Marks: 1
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