The following information was developed from the financial statements of Free Time, Inc. At the beginning of 2015, the company’s former supplier went bankrupt, and the company began buying merchandise from another supplier.

Instructions

a. Compute the net sales for each year.

b. Compute the cost of goods sold in dollars and as a percentage of net sales for each year.

c. Compute operating expenses in dollars and as a percentage of net sales for each year. (Income taxes expense is not an operating expense.)

d. Prepare a condensed comparative income statement for 2014 and 2015. Include the following items: net sales, cost of goods sold, gross profit, operating expenses, income before income tax, income tax expense, and net income. Omit earnings per share statistics.

e. Identify the significant favorable and unfavorable trends in the performance of Free Time, Inc. Comment on any unusual changes.

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2015 2014 Gross profit on sales Income before income tax Net income Net income as a percentage of net sales $720,000 $800,000 200,000 220,000 150,000 170,000 8% 10%