Neil Webster is the sole proprietor of Prestigious Pugs, a business specializing in the sale of high-end pet gifts and accessories. Prestigious Pugs' sales totaled $1,105,000 during the most recent year. During the year, the company spent $55,000 on expenses relating to website maintenance, $30,500 on marketing, and $29,500 on wrapping, boxing, and shipping the goods to customers. Prestigious Pugs also spent $638,000 on inventory purchases and an additional $19,500 on freight-in charges. The company started the year with $16,250 of inventory on hand and ended the year with $16,000 of inventory. Prepare Prestigious Pugs' income statement for the most recent year.

Answer and Explanation:

The Preparation of the income statement is shown below:-

Prestigious Pugs

Income Statement

For the most recent year

Particulars                                                                 Amount

Sales                                                                       $1,105,000

Less: Cost of goods sold                                        ($657,750)

Gross profit                                                              $447,250

Less : Operating expenses

website maintenance expenses      ($55,000)  

Marketing expenses                          ($30,500)

wrapping, boxing, and shipping Exp ($29,500)   ($115,000)

Net income                                                               $332,250

Working note:

Beginning inventory                             $16,250

Add: Inventory purchase                     $657,500

($638,000 + 19,500)

Total goods available for sale             $673,750

Less: Ending inventory                       ($16,000)

Cost of goods sold                               $657,750