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##### C_5 - Tanika Jones_Analysis of Merchandising Income Statement

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Question;Analysis;of Merchandising Income Statement;C_5;In;2009, Tanika Jones opened a small retail store in a suburban mall. Called;Tanika?s Jeans Company, the shop sold designer jeans. Tanika Jones worked14;hours a day and controlled all aspects of the operation. All sales were for;cash or bank credit card. Tanika?s Jeans Company was such a success that in;2010, Jones decided to open a second store in another mall. Because the new;shop needed her attention, she hired a manager to work in the original store;with its two existing sales clerks. During 2010, the new store was successful;but the operations of the original store did not match the first year?s;performance.;Concerned about this turn of events, Jones;compared the two years? results for the original store. The figures are as;follows;2010 2009;Net;sales \$325,000;\$350,000;Cost;of goods sold 225,000 225,000;Gross;margin \$100,000 \$125,000;Operating;expenses 75,000 50,000;Income;before income taxes \$ 25,000 \$ 75,000;In;addition, Jones?s analysis revealed that the cost and selling price of jeans;were about the same in both years and that the level of operating expenses was;roughly the same in both years, except for the new manager?s \$25,000 salary.;Sales returns and allowances were insignificant amounts in both years.;Studying the situation further, Jones discovered the;following facts about the cost of goods sold;2010 2009;Purchases;\$200,000;\$271,000;Purchases;Returns and allowances 15,000 20,000;Freight-in;19,000 27,000;Physical;inventory, end of year 32,000 53,000;Still;not satisfied, Jones went through all the individual sales and purchase records;for the year. Both sales and purchases were verified. However, the 2010 ending;inventory should have been \$57,000, given the unit purchases and sales during;the year. After puzzling over all this information, Jones comes to you for;accounting help.;1.;Using Jones?s new information, recompute the cost of goods sold for 2009 and;2010, and account for the difference in income before income taxes between 2009;and 2010.;2.;Suggest at least two reasons for the discrepancy in the 2010 ending inventory.;How might Jones improve the management of the original store?

Paper#37265 | Written in 18-Jul-2015

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