Answer and Explanation:
1. The computation is shown below:
(a) For the cost of goods purchased
Purchases $260,000
Add: Merchandise freight-in $10,000
Less: Purchase returns
and allowances $(11,000)
Purchase discounts $(9,000)
Cost of goods purchased $250,000
(b) For the cost of goods sold
Merchandise inventory, January 1, 2011 $45,000
Add: Cost of goods purchased $250,000
Goods available for sale $2,95,000
Less: Merchandise inventory,
December 31, 2011 $ ($52,000)
Cost of goods sold $243,000
2. Now the preparation of the income statement is presented below:
<u>Marvin department store
</u>
<u>Income statement
</u>
<u>year ended December 31, 2017
</u>
<u>(In thousands)
</u>
Revenues $320,000
Less:
Cost of good sold (see above) ($243,000)
Gross Margin $77,000
Less:
Operating costs:
Marketing and advertising cost ($24,000)
Shipping of merchandise to customers (2,000)
Building depreciation ($4,200)
General and administrative costs ($32,000)
Total operating cost ($62,200)
Operating income $14,800
