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Crafty Company manufactures and sells printers. On the last day of the first quarter of...

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Accounting

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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