Preparing an Income Statement and Computing the Gross Profit Percentage and Receivables Turnover Ratio with Discounts, Returns, and Bad Debts
Tungsten Company, Inc., sells heavy construction equipment. There are 10,000 shares of capital stock outstanding. The annual fiscal period ends on December 31. The following condensed trial balance was taken from the general ledger on December 31, 2011:

Required:
1. Beginning with the amount for net sales, prepare an income statement (showing both gross profit and income from operations). Treat sales discounts and sales returns and allowances as a contra-revenue.
2. The beginning balance in Accounts Receivable (net) was $16,000. Compute the gross profit percentage and receivables turnover ratio and explain theirmeaning.

Transcribed Image Text:

Debit Account Titles Credit $ 33,600 Cash Accounts receivable (net) 14,400 Inventory, ending Operational assets Accumulated depreciation 52.000 40,000 $ 16,800 Liabilities 24,000 72,000 Capital stock Retained earnings, January 1, 2011 Sales revenue 9,280 147,100 Sales returms and allowances 5,600 78,400 14,100 15,400 1,600 Cost of goods sold Selling expense Administrative expense Bad debt expense Sales discounts 6,400 Income tax expense 7,680 $269,180 $269,180 Totals