Problem 1 Suppose in its income statement for the year ended June 30, 2020, The Clorox Company reported the following condensed data (dollars in millions). Salaries and wages expense $ 460 Research and Depreciation expense 90 development expense $ 114 Sales revenue 5,730 Income tax expense 276 Interest expense 161 Loss on disposal of plant assets 46 Advertising expense 499 Cost of goods sold 3,104 Sales returns and Rent expense 105 allowances 280 Utilities expense 60 Instructions (a) Prepare a multiple-step income statement. (b) Calculate the gross profit rate and the profit margin and explain what each means. (c) Assume the marketing department has presented a plan to increase advertising expenses by $340 million. It expects this plan to result in an increase in both net sales and cost of goods sold of 25%. (Hint: Increase both sales revenue and sales returns and allowances by 25%.) Redo parts (a) and (b) and discuss whether this plan has merit. (Assume a tax rate of 34%, and round all amounts to whole dollars.)

Problems 2 Eggers Company reports the following for the month of June. Date Explanation Units Unit Cost Total Cost June 1 Inventory 120 $5 $ 600 12 Purchase 370 6 2,220 23 Purchase 200 7 1,400 30 Inventory 230 Instructions (a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO, and (3) average-cost. (Round average unit cost to three decimal places). (b) Which costing method gives the highest ending inventory? The highest cost of goods sold? Why? (c) How do the average-cost values for ending inventory and cost of goods sold relate to ending inventory and cost of goods sold for FIFO and LIFO? (d) Explain why the average cost is not $6?