P5.4A (LO 4, 6), AP Wolford Department Store is located in midtown Metropolis. During the past several years, net income has been declining because suburban shopping centers have been attracting business away from city areas. At the end of the company's fiscal year on November 30, 2022, these accounts appeared in its adjusted trial balance. Prepare financial statements and calculate profitability ratios. $26,800 Accounts Payable Accounts Receivable 17,200 Accumulated Depreciation-Equipment 68,000 8,000 Cash Common Stock 35,000 614,300 Cost of Goods Sold 6,200 Freight-Out 157,000 Equipment Depreciation Expense 13,500 Dividends 12,000 Gain on Disposal of Plant Assets 2,000 Income Tax Expense 10,000 9,000 Insurance Expense Interest Expense 5,000 26,200 Inventory Notes Payable 43.500 6,000 Prepaid Insurance 33,500 Advertising Expense 34,000 Rent Expense Retained Earnings 14,200 117,000 Salaries and Wages Expense 6,000 Salaries and Wages Payable 20,000 Sales Returns and Allowances 904,000 Sales Revenue 10,600 Utilities Expense Net income $ 32,900 Tot. assets $146,400 b. Calculate the profit margin and the gross profit rate. c. The vice president of marketing and the director of human resources have developed a proposal whereby the company would compensate the sales force on a strictly commission basis. Given the increased incentive, they expect net sales to increase by 15%. As a result, they estimate that gross profit will increase by $40,443 and expenses by $58,600. Compute the expected new net income. (Hint: You do not need to prepare an income statement.) Then, compute the revised profit margin and gross profit rate. Comment on the effect that this plan would have on net income and on the ratios, and evaluate the merit of this proposal. (Ignore income tax effects.)