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Southern Gift Shop Income Statement Year Ending December 31 Percent 1,488,500.00 100% Gross Sales Returns Net Sales Inventory, January 1 Cost of Goods Purchased Freight

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Southern Gift Shop Income Statement Year Ending December 31 Percent 1,488,500.00 100% Gross Sales Returns Net Sales Inventory, January 1 Cost of Goods Purchased Freight Total Cost of Goods Purchased Total of Goods Available for Sale Inventory, December 31 Cost of Goods Sold $ S S S S S 1,520,000 -31,500 $ 460,000.00 621,300.00 15,800.00 637,100.00 1,096,100.00 (406,000.00) S 691,100.00 46% S 797.400.00 54% Gross Profit Expenses Salaries & Wages S Rent $ Advertising S Utilities S Taxes on Inventory & Payroll $ Miscellaneous Expenses S Total Expenses Net Income Before Taxes Income Taxes Net Income After Taxes 84,600.00 26,100.00 18,200.00 41,300.00 5,700.00 11,000.00 S S S S 6% 2% 1% 3% 0% 1% 13% 41% 4% 37% 186.900.00 610,500.00 63,840.00 546,660.00 1. Referring back to Part 2 and the income statement for the Southern Gift Shop, answer the following questions: a. What are their largest expenses constraining their overall net income? b. If you were running this firm, what might you do to increase profitability? c. What factors could further decrease profitability? 2. Assuming the following additional information for the Southern Gift Shop: Current assets $763,000 Current liabilities $460,000 Cash $49,000 Accounts receivable $130,000 Inventory $360,000 a. Calculate the current ratio and the acid-test ratio. Show your work. b. Comment on the company's liquidity based on your calculated ratios as compared to the rules of thumb explained in your textbook

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