ABC Ltd has the following financial data for the year:

• Beginning Inventory: $15,000
• Purchases: $75,000
• Ending Inventory: $10,000
• Net Sales: $120,000
• Sales Returns: $3,000
• Sales Discounts: $2,000
• Administrative Expenses: $20,000
• Selling Expenses: $15,000

Requirements:

1. Prepare the cost of goods sold statement.
2. Calculate the gross profit.
3. Prepare the income statement.
4. Compute the operating income.
5. Discuss the effect of administrative expenses on the company’s profitability.