Assume Party Store has the following account balances for the month of March 2021, and that the company uses a perpetual inventory system.

Sales revenue $75,800 Cost of goods sold $38,500

Inventory (Mar. 31, 2021) 1,800

Advertising expense 5,200 Insurance expense 1,700

Rent expense 3,300 Sales discounts 2,900

Gain on sale of building 6,900 Salaries expense 8,200

Inventory (Mar. 1, 2021) 2,200 Income tax expense 6,100

Required:

1. Prepare a multiple-step income statement for the month ended March 31, 2021.

2. Calculate the inventory turnover ratio for the month of March.

Would you expect this ratio to be higher or lower in December 2021? Explain.

3. Calculate the gross profit ratio for the month of March.

Answer:

Requirement 1

Party Store

Multiple-Step Income Statement

For the month ended March 31, 2021

Net sales:

Total sales revenue $75,800

Net sales

Gross Profit

Total 18,400

Operating income 16,000

Nonoperating items:

Income before income taxes

Net income $16,800