Big Tommy Corporation is a local grocery store organized seven years ago as a corporation. At that time, 6,000 common shares were issued to the three organizers. The store is in an excellent location, and sales have increased each year. At the end of 2012, the bookkeeper prepared the following statement (assume that all amounts are correct; note the incorrect terminology and format):

Required:
1. Beginning with net sales, prepare a multiple-step income statement (showing both gross profit and profit from operations). Treat sales discounts as an expense.
2. The beginning and ending balances of trade receivables were \(\$ 19,000\) and \(\$ 21,000\), respectively. Compute the gross profit percentage and receivables turnover ratio and explain their meaning.

Transcribed Image Text:

BIG TOMMY CORPORATION Profit and Loss December 31, 2012 Debit Credit Sales $210,000 Cost of sales $139,500 Sales returns and allowances 4,000 Selling expenses. 29.000 Administrative and general expenses 8,000 Bad debt expense 1.500 Sales discounts 3,000 Income tax expense 7,500 Net profit Totals 17,500 $210,000 $210,000