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Shown here are annual financial data at December 31, 2017, taken from two different companies. Music World Retail Wave-Board Manufacturing Beginning inventory Merchandise $ 145,000 Finished goods $ 350,000 Cost of purchases 340,000 Cost of goods manufactured 590,000 Ending inventory Merchandise 120,000 Finished goods 170,000 Required: 1. Prepare the cost of goods sold section of the income statement at December 31, 2017, for each company in Merchandising Business and Manufacturing Business.

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Answer:

(a)Merchandising Business

                        Music World Retail

Income statement at December 31, 2017 (extract)

Cost of Goods Sold

Beginning inventory Merchandise               145,000

Add Cost of purchases                                 340,000

Less  Ending inventory Merchandise          (120,000)

Cost of Goods Sold                                       365000

(a)Manufacturing Business

                        Wave-Board Manufacturing

Income statement at December 31, 2017 (extract)

Cost of Goods Sold

Beginning Finished goods                           350,000

Add Cost of goods manufactured               590,000

Less Finished goods                                    (170,000)

Cost of Goods Sold                                       770000

Explanation:

(a)Merchandising Business

Music World Retail is in the Merchandising Business and its Cost of Sales will account for cost of merchandise purchased.

(a)Manufacturing Business

Wave-Board Manufacturing is in the Manufacturing Business and its Cost of Sales will account for cost of Finished Goods transferred from the Manufacturing Account