New West Company recently hired a new accountant whose first task was to prepare the financial statements for the year ended December 31, 2024. The following is what he produced:

The owner of the company, Lily Oliver, is confused by the statements and has asked you for your help. She doesn’t understand how, if her Owner’s Capital account was $75,000 at December 31, 2023, owner’s equity is now only $24,680. The accountant tells you that $24,680 must be correct because the balance sheet is balanced. The accountant also tells you that he didn’t prepare a statement of owner’s equity because it is an optional statement. You are relieved to find out that, even though there are errors in the statements, the amounts used from the accounts in the general ledger are the correct amounts.

Instructions
Prepare the correct multiple-step income statement, statement of owner’s equity, and classified balance sheet. You determine that $5,000 of the loan payable on the equipment must be paid during 2025. New West Company uses the periodic inventory system with the earnings approach.

Taking It Further

If a company uses a periodic inventory system, does it have to show on its income statement all of the details as to how cost of goods sold was calculated? Why or why not?

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Sales Less: Unearned revenue Purchase discounts Total revenue Cost of goods sold Purchases Less: Purchase returns and allowances Net purchases Add: Sales returns and allowances Cost of goods available for sale Add: Delivery expense Cost of selling merchandise Gross profit margin Operating expenses Freight in Insurance expense Interest expense Rent expense Salaries expense Total operating expenses Profit margin Other revenues Interest revenue Investment by owner Other expenses NEW WEST COMPANY Income Statement December 31, 2024 Depreciation expense Drawings by owner Profit from operations $1,500 3,500 7,000 48,000 $ 5,500 3,480 232,000 4,000 236,000 7,500 243,500 9,500 4,500 10,500 2,500 18,000 42,000 5,000 55,000 $395,000 8,980 386,020 253,000 133,020 77,500 55,520 (50,000) $ 5,520