Jordan s Boutique is a retail clothing store for men & women . The store operates out of a rented building in Malaga , Spain . The following is the stores adjusted year - end trial balance dated December 31, current year.

Cash	$ 21,888
Accounts receivable	$ 3,744
Merchandise inventory	$ 25,200
Prepaid rent	$ 2,592
Office supplies	$ 1,296
Office equipment	$ 59,040
Accumulated depreciation: office equipment		$ 17,280
Accounts payable		$ 18,360
Sales taxes payable		$ 4,608
Capital stock		$ 25,920
Retained earnings		$ 30,312
Sales		$ 325,440
Sales returns and allowances	$ 3,600
Cost of goods sold	$ 144,828
Purchase discounts lost	$ 360
Utilities expense	$ 5,932
Office supply expense	$ 749
Depreciation expense: office equipment	$ 3,960
Rent expense	$ 8,784
Insurance expense	$ 1,296
Salaries expense	$ 126,857
Income taxes expense	$ 11,794
	$ 42 1, 92 0	$ 42 1, 92 0

a. Prepare an income statement for Jordan s Boutique dated December 31, current year.

b. Compute the stores gross profit margin as a percentage of net sales.

c. Do the stores customers seem to be satisfied with their purchases? Defend your answer.

d. Explain how you can tell that the business records inventory purchases net of any purchase discounts.

e. The store reports sales taxes payable of $ 4,608 in its adjusted trial balance. Explain why i t does not report any sales taxes expense.

Problem 2 :

On October 1, 2018, Pipes & Plumbing Company received a 10 percent, six - month note receivable from Kirkman Constructions, one of Pipes & Plumbing Companys problem credit customers. Kirkman had owed $75,000 on an account receivable that had defaulted. Pipes & Plumbing insists that any customer who fails to pay an account receivable when due must replace their unpaid account receivable with an interest - bearing note receivable. Assume the Pipes & Plumbing Company makes adjusting entrie s for accrued interest revenue once a year on December 31.

Journalize the following events on the books of Pipes & Plumbing Company:

1. Record the receipt of the note on October 1 in settl eme nt of the account receivable

2. Record accrued interest at December 31, 2018.

3. Assume that Kirkman Constructions pays the note plus accrued interest in ful l. Record the collection of the principal and interest on April 1, 2019.

4. Assume that Kirkman Constructions did not make the necessary principal and i nterest payment on April 1, 2019, defaulting on his obligation. Record the default on April 1, 2019.

5. Why does Pipes & Plumbing Company insist that any customer who fails to pay must replace their unpaid account receivable with an in terest - bearing note receivable?