Harry’s Haberdashery is a retail clothing store for men. The store operates out of a rented building in Albertsville, Virginia. Shown below is the store’s adjusted year-end trial balance dated December 31, 2015.

Instructions

a. Prepare an income statement for Harry’s Haberdashery dated December 31, 2015.

b. Compute the store’s gross profit margin as a percentage of net sales.

c. Do the store’s customers seem to be satisfied with their purchases? Defend your answer.

d. Explain how you can tell that the business records inventory purchases net of any purchase discounts.

e. The store reports sales taxes payable of $5,000 in its adjusted trial balance. Explain why it does not report any sales taxes expense.

f. What is meant by the term “operating cycle” and which accounts in the trial balance comprise Harry’s Haberdashery’s operating cycle?

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HARRY'S HABERDASHERY ADJUSTED TRIAL BALANCE DECEMBER 31, 2015 $ 39,270 Cash.... Accounts receivable. 4,400 Merchandise inventory. Prepaid rent ... Office supplies.. Office equipment Accumulated depreciation: office equipment Accounts payable Sales taxes payable . Capital stock Retained earnings 29,700 3,100 1,500 70,000 $ 20,000 22,000 5,000 31,000 36,000 Sales ..... 384,000 Sales returns and allowances 4,000 Cost of goods sold... Purchase discounts lost.. Utilities expense... Office supply expense Depreciation expense: office equipment Rent expense. 157,630 400 7,000 900 4,700 10,000 Insurance expense. Salaries expense Income tax expense. 1,500 150,000 13,900 $498,000 $498,000