Crafty Company manufactures and sells printers. On the last day of the first quarter of...
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Crafty Company manufactures and sells printers. On the last day of the first quarter of the year, Crafty contrives with Tricky Company to sell 100 printers to Tricky Company for $1,000 each. In terms of Craftys agreement with Tricky, Tricky will sell those 100 printers back to Crafty at the same price of $1,000 each in the second quarter of the year. The cost of each printer that Crafty manufactures is $600. Crafty allocates the full cost of the printers that it purchases from Tricky to inventory.
Examine the following extract from Craftys income statement, excluding the contrived round-trip transaction:
Income Statement Extract: Crafty Co. First Quarter
Sales
$200,000
Cost of goods sold
120,000
Gross margin
80,000
Selling and administrative expenses
30,000
Assume that Crafty Company goes ahead with the contrived round-trip transaction with Tricky Company. Prepare Craftys income statement for the first quarter with the round-trip transaction included. Ignore taxes.
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