Parkland Department Store is located near the Lyndale Shopping Mall. At the end of the company’s fiscal year on December 31, 2012, the following accounts appeared in its adjusted trial balance.

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 ratio 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. (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 the ratios, and evaluate the merit of this proposal.

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Accounts Payable Accounts Receivable $ 73,300 45,500 Accumulated Accumulated Depreciation-Buildings Depreciation-Equipment 52,500 42,600 Buildings 190,000 Cash Common Stock Cost of Goods Sold 28,000 140,000 412,000 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 Inventory Mortgage Payable Prepaid Insurance 2,000 43,000 62,500 2,400