Refer to P1-5A and add the following requirement.

Prepare a letter to the president of the company, Shelly Phillips, describing the changes you made. Explain clearly why net income is different after the changes. Keep the following points in mind as you compose your letter.

1. This is a letter to the president of a company, who is your friend. The style should be generally formal, but you may relax some requirements. For example, you may call the president by her first name.

2. Executives are very busy. Your letter should tell the president your main results first (for example, the amount of net income).

3. You should include brief explanations so that the president can understand the changes you made in the calculations.

In P1-5A

Empire Company is a manufacturer of smart phones. Its controller resigned in October 2017. An inexperienced assistant accountant has prepared the following income statement for the month of October 2017.

Prior to October 2017, the company had been profitable every month. The company's president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired additional information as follows.
1. Inventory balances at the beginning and end of October were:

2. Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Transcribed Image Text:

EMPIRE COMPANY Income Statement For the Month Ended October 31, 2017 $780,000 Sales revenue Less: Operating expenses Raw materials purchases Direct labor cost Advertising expense Selling and administrative salaries Rent on factory facilities Depreciation on sales equipment Depreciation on factory equipment Indirect labor cost Utilities expense Insurance expense $264,000 190,000 90,000 75,000 60,000 45,000 31,000 28,000 12,000 8,000 803,000 $ (23,000) Net loss October1 October 31 Raw materials Work in process Finished goods $18,000 20,000 30,000 $29,000 14,000 50,000