F1 Income Statement Q 56, find net income:
Gross sales
$ 3,600,000
Cost of goods sold
1,200,000
Selling and administrative expense
500,000
Adjustment for a prior-year understatement of amortization expense
59,000
Sales returns
34,000
Gain on sale of available-for-sale securities
8,000
Gain on disposal of a discontinued business segment
4,000
Unrealized gain on available-for-sale securities
2,000
And the answer:
Net sales
$ 3,566,000
= $3,600,000 gross sales – $34,000 sales returns
Cost of goods sold
(1,200,000)
Gross profit
2,366,000
Selling and administrative
(500,000)
Operating income
1,866,000
Other income (gain on sale)
8,000
Income from continuing operations
1,874,000
Income tax expense
(562,200)
= $1,874,000 × 30%
Income before discontinued operations
1,311,800
Gain from discounted segment (after tax)
2,800
= $4,000 × (1 – 30%)
Net income
$ 1,314,600
Why don't the sales returns affect COGS? Or did they already affect COGS and are reflected on the income statement?
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