1. **State the problem:** Prepare the income statement for Bartolome Pozon Traders using the function of expense method based on the provided trial balance data as of December 31, 2023. 2. **Formula and explanation:** The income statement using the function of expense method groups expenses by their function (e.g., cost of goods sold, selling expenses, administrative expenses). The general structure is: $$\text{Sales} - \text{Sales Returns and Allowances} - \text{Sales Discounts} = \text{Net Sales}$$ $$\text{Net Sales} - \text{Cost of Goods Sold} = \text{Gross Profit}$$ $$\text{Gross Profit} - \text{Operating Expenses} = \text{Net Income}$$ Where: $$\text{Cost of Goods Sold} = \text{Beginning Inventory} + \text{Net Purchases} + \text{Transportation In} - \text{Ending Inventory}$$ $$\text{Net Purchases} = \text{Purchases} - \text{Purchases Returns and Allowances} - \text{Purchases Discounts}$$ 3. **Calculate Net Sales:** $$\text{Net Sales} = 9,630,000 - 280,000 - 210,000 = 9,140,000$$ 4. **Calculate Net Purchases:** $$\text{Net Purchases} = 4,720,000 - 110,000 - 70,000 = 4,540,000$$ 5. **Calculate Cost of Goods Sold (COGS):** $$\text{COGS} = 2,170,000 + 4,540,000 + 50,000 - 1,430,000 = 5,330,000$$ 6. **Calculate Gross Profit:** $$\text{Gross Profit} = 9,140,000 - 5,330,000 = 3,810,000$$ 7. **Calculate Operating Expenses:** Selling Expenses: - Salaries Expense-Selling: 1,140,000 - Selling Supplies Expense: 80,000 - Depreciation Expense-Store Equipment: 160,000 - Transportation Out: 170,000 Total Selling Expenses = 1,140,000 + 80,000 + 160,000 + 170,000 = 1,550,000 General and Administrative Expenses: - Salaries Expense-General: 920,000 - Office Supplies Expense: 460,000 - Depreciation Expense-Office Equipment: 320,000 - Insurance Expense: 55,000 - Miscellaneous Expenses: 30,000 Total General and Administrative Expenses = 920,000 + 460,000 + 320,000 + 55,000 + 30,000 = 1,785,000 Total Operating Expenses = 1,550,000 + 1,785,000 = 3,335,000 8. **Calculate Net Income:** $$\text{Net Income} = 3,810,000 - 3,335,000 = 475,000$$ **Final Income Statement Summary:** - Net Sales: 9,140,000 - Cost of Goods Sold: 5,330,000 - Gross Profit: 3,810,000 - Operating Expenses: 3,335,000 - Net Income: 475,000