Parker Department Store is located near the Mark Twain Shopping Mall. At the end of the company’s fiscal year on December 31, 2014, the following accounts appeared in its adjusted trial balance.

Accounts Payable .............$ 73,300

Accounts Receivable........... 43,500

Accumulated Depreciation—Buildings.... 52,500

Accumulated Depreciation—Equipment.... 42,600

Buildings................ 140,000

Cash.................. 30,000

Common Stock.............. 140,000

Cost of Goods Sold............ 412,000

Depreciation Expense............ 23,400

Dividends................ 15,000

Equipment............... 100,000

Gain on Disposal of Plant Assets...... 4,300

Income Tax Expense........... 15,000

Insurance Expense ............. 8,400

Interest Expense............. 7,000

Interest Payable............. 2,000

Inventory................ 43,000

Land.................. 50,000

Mortgage Payable............. 62,500

Prepaid Insurance.............. 2,400

Maintenance and Repairs Expense...... 6,200

Retained Earnings............. 19,200

Salaries and Wages Expense......... 111,000

Sales Revenue............... 626,000

Salaries and Wages Payable.......... 3,500

Sales Returns and Allowances......... 8,000

Utilities Expense.............. 11,000

Additional data: $20,000 of the mortgage payable is due for payment next year.

Instructions

(a) Prepare a multiple-step income statement, a retained earnings statement, and a classified balance sheet.

(b) Calculate the profit margin and the gross profit rate.

(c) The vice president of marketing and the director of human resources have developed a proposal whereby the company would compensate the sales force on a strictly commission basis. Given the increased incentive, they expect net sales to increase by 25%. As a result, they estimate that gross profit will increase by $50,500 and expenses by $27,800. Compute the expected new net income. Then, compute the revised profit margin and gross profit rate. Comment on the effect that this plan would have on net income and the ratios, and evaluate the merit of this proposal.