Problem 14.3A Reconstructing an income statement to reflect proper accounting principles. LO 14-5,14- 6 Samuel Cox, owner of Cox Video Center, sent the income statement shown below to several of his creditors who had asked for financial statements. The business is a sole proprietorship that sells audio and other electronic equipment. One of the creditors looked over the income statement and reported that it did not conform to generally accepted accounting principles. Cox video Center Income Statement December 31, 2019 $691,000 Cash Collected from Customers Cost of Goods Sold Merchandise Inventory, Jan. 1 Payments to Suppliers $ 79,000 442,000 521,000 89,000 Less Merchandise Inventory, Dec. 31 Cost of Goods Sold Gross Profit on Sales Operating Expenses Salaries of Employees Salary of Owner Office Expense Depreciation Expense Income Tax of Owner 432, 000 259,000 Payroll Taxes Expense Advertising and other Selling Expenses Repairs Expense Insurance Expense Interest Expense Utility and Telephone Expense Legal and Audit Expense Miscellaneous Expense Total Expenses Net Loss from Operations Increase in Appraised Value of Land During Year 80,100 33,600 30,600 20,720 7,600 8,600 22, 500 11,600 , 000 11,600 18,100 3,100 28 100 280, 220 (21,220) 24,000 Net Income $2,7B0 The following additional information was made available by Cox: a. On January 1, 2019, accounts recelvable from customers totaled $26,300. On December 31, 2019, the recelvables totaled $32,600. b. No effort has been made to charge off worthless accounts. An analysls shows that $2,000 of the accounts recelvable on December 31, 2019, will never be collected. c. The beginning and ending merchandise inventories were valued at their estimated selling price. The cost of the ending inventory is determined to be $48,100, and the cost of the beginning inventory is determined at $44,400. d. On January 1, 2019, suppliers of merchandise were owed $38,800, while on December 31, 2019, these debts were $45,025 e. The owner paid himself a salary of $2,800 per month from the funds of the business and charged this amount to an account called f. The owner also withdrew cash from the firm's bank account to pay himself $5,100 interest on his capital investment. This amount g. A check for $7,600 to cover the owner's personal income tax for the previous year was issued from the firm's bank account. This h. Depreclation on assets was computed at 8 percent of the gross profit. An analysis of assets showed that the original cost of the Salary of Owner. was charged to Interest Expense. was charged to Income Tax of Owner equipment and fixtures was $63,300. Their estimated useful life is 12 years with no salvage value. The building cost $149,500. Its useful life is expected to be 25 years with no salvage value I. Included in Repairs Expense was $6,800 paid on December 22 for a new parking lot completed that day J. The increase in land value was based on an appraisal by a qualified real estate appraiser Requirec Prepare an income statement in accordance with generally accepted accounting principles. Analyze: What is the gross profit percentage based on the income statement you prepared? Problem 14.3A Reconstructing an income statement to reflect proper accounting principles. LO 14-5,14- 6 Samuel Cox, owner of Cox Video Center, sent the income statement shown below to several of his creditors who had asked for financial statements. The business is a sole proprietorship that sells audio and other electronic equipment. One of the creditors looked over the income statement and reported that it did not conform to generally accepted accounting principles. Cox video Center Income Statement December 31, 2019 $691,000 Cash Collected from Customers Cost of Goods Sold Merchandise Inventory, Jan. 1 Payments to Suppliers $ 79,000 442,000 521,000 89,000 Less Merchandise Inventory, Dec. 31 Cost of Goods Sold Gross Profit on Sales Operating Expenses Salaries of Employees Salary of Owner Office Expense Depreciation Expense Income Tax of Owner 432, 000 259,000 Payroll Taxes Expense Advertising and other Selling Expenses Repairs Expense Insurance Expense Interest Expense Utility and Telephone Expense Legal and Audit Expense Miscellaneous Expense Total Expenses Net Loss from Operations Increase in Appraised Value of Land During Year 80,100 33,600 30,600 20,720 7,600 8,600 22, 500 11,600 , 000 11,600 18,100 3,100 28 100 280, 220 (21,220) 24,000 Net Income $2,7B0 The following additional information was made available by Cox: a. On January 1, 2019, accounts recelvable from customers totaled $26,300. On December 31, 2019, the recelvables totaled $32,600. b. No effort has been made to charge off worthless accounts. An analysls shows that $2,000 of the accounts recelvable on December 31, 2019, will never be collected. c. The beginning and ending merchandise inventories were valued at their estimated selling price. The cost of the ending inventory is determined to be $48,100, and the cost of the beginning inventory is determined at $44,400. d. On January 1, 2019, suppliers of merchandise were owed $38,800, while on December 31, 2019, these debts were $45,025 e. The owner paid himself a salary of $2,800 per month from the funds of the business and charged this amount to an account called f. The owner also withdrew cash from the firm's bank account to pay himself $5,100 interest on his capital investment. This amount g. A check for $7,600 to cover the owner's personal income tax for the previous year was issued from the firm's bank account. This h. Depreclation on assets was computed at 8 percent of the gross profit. An analysis of assets showed that the original cost of the Salary of Owner. was charged to Interest Expense. was charged to Income Tax of Owner equipment and fixtures was $63,300. Their estimated useful life is 12 years with no salvage value. The building cost $149,500. Its useful life is expected to be 25 years with no salvage value I. Included in Repairs Expense was $6,800 paid on December 22 for a new parking lot completed that day J. The increase in land value was based on an appraisal by a qualified real estate appraiser Requirec Prepare an income statement in accordance with generally accepted accounting principles. Analyze: What is the gross profit percentage based on the income statement you prepared