Zwick Department Store is located in midtown Metropolis. During the past several years, net income has been declining because suburban shopping centers have been attracting business away from city areas. At the end of the company’s fiscal year on November 30, 2007, these accounts appeared in its adjusted trial balance.

Accounts Payable $ 18,300 Accounts Receivable 17,200 Accumulated Depreciation—Delivery Equipment 20,000 Accumulated Depreciation—Store Equipment 38,000 Cash 8,000 Common Stock 35,000 Cost of Goods Sold 633,300 Delivery Expense 6,200 Delivery Equipment 57,000 Depreciation Expense—Delivery Equipment 4,000 Depreciation Expense—Store Equipment 9,500 Dividends 12,000 Gain on sale of equipment 2,000 Insurance Expense 9,000 Interest Expense 5,000 Merchandise Inventory 36,200 Notes Payable 47,500 Prepaid Insurance 6,000 Property Tax Expense 3,500 Property Taxes Payable 3,500 Rent Expense 29,000 Retained Earnings 14,200 Salaries Expense 110,000 Problems: Set A 251 Journalize, post, and prepare trial balance and partial income statement.

(sO 2;3,,4}

(c) Tot. trial balance $7,750

(d) Gross profit $ 520 Prepare financial statements and calculate profitability ratios.

(SO 4, 6)

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Cae 252 CHAPTER 5. Merchandising Operations and the Multiple-Step Income Statement

(a) Net income $ 58,900 Tot. assets $171,400 Prepare a correct multiplestep income statement.

(SO 4)

Net income $111,000 Journalize, post, and prepare adjusted trial balance and financial statements.

(SO 4)

Sales 914,000 Sales Commissions Expense 17,000 Sales Commissions Payable 6,000 Sales Returns and Allowances 20,000 Store Equipment 105,000 Utilities Expense 10,600 Additional data: Notes payable are due in 2011.

Instructions

(a)

(b)

(c)

P5 Prepare a multiple-step income statement, a retained earnings statement, and a classified balance sheet.

Calculate the profit margin ratio and the gross profit rate.

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 using 20% of net sales. Given the increased incentive, they expect net sales to increase by 15%. As a result, they estimate that gross profit will increase by $39,105 and operating expenses by $75,595. Compute the expected new net income. (Hint: You do not need to prepare an income statement). Then compute the revised profit margin ratio and gross profit rate. Comment on the effect that this plan would have on net income and on the ratios, and evaluate the merit of this proposal.

-5A An inexperienced accountant prepared this condensed income statement for Lahti Company, a retail firm that has been in business for a number of years.

As LAHTI COMPANY Income Statement For the Year Ended December 31, 2007 Revenues Net sales $850,000 Other revenues 22,000 872,000 Cost of goods sold 555,000 Gross profit 317,000 Operating expenses Selling expenses 104,000 Administrative expenses 93,000 197,000 Net earnings $120,000 an experienced, knowledgeable accountant, you review the statement and determine the following facts.

t aah on Net sales consist of sales $906,000, less delivery expense on merchandise sold $26,000, and sales returns and allowances $30,000.

Other revenues consist of sales discounts $14,000 and rent revenue $8,000.

Selling expenses consist of salespersons’ salaries $80,000; depreciation on accounting equipment $8,000; advertising $10,000; and sales commissions $6,000. The commissions represent commissions paid. At December 31, $3,000 of commissions have been earned by salespersons but have not been paid.

. Administrative expenses consist of office salaries $37,000; dividends $18,000; utilities

$12,000; interest expense $2,000; and rent expense $24,000, which includes prepayments totaling $4,000 for the first quarter of 2008.

Instructions Prepare a correct detailed multiple-step income statement.