Brown Shoe Company Inc. and Payless Shoesource Inc. are two leading footwear companies in the United States and Canada. The following data were taken from the 2008 annual reports of both companies (amounts in millions of U.S. dollars):

Required:
1. Based on these data, prepare a multiple-step income statement for each company for the year ending December 31, 2008 (showing both gross profit and profit from operations).
2. Compute the gross profit and the gross profit percentage for each company. Explain what these two numbers mean. What do you believe accounts for the difference between the gross profit percentages of both companies?

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Brown Payless Sales of merchandise $2,276.4 $3.442.0 Income taxes (53.8) (48.0) Cash dividends declared 9.1 Selling and administrative expense 851.9 1,007.2 Cost of products sold 1,394.1 2,344.6 Interest expense 17.1 77.1 Other expenses 204.6 130.4 Number of common shares outstanding 41.5 62.9