Wildhorse 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 companys fiscal year on November 30, 2022, these accounts appeared in its adjusted trial balance.

Accounts Payable$ 39,400

Accounts Receivable25,600

Accumulated DepreciationEquipment102,000

Cash12,000

Common Stock52,500

Cost of Goods Sold914,940

Freight-Out9,730

Equipment238,590

Depreciation Expense20,700

Dividends18,000

Gain on Disposal of Plant Assets3,000

Income Tax Expense15,000

Insurance Expense13,500

Interest Expense7,500

Inventory39,100

Notes Payable65,250

Prepaid Insurance9,000

Advertising Expense50,250

Rent Expense51,000

Retained Earnings21,100

Salaries and Wages Expense178,040

Sales Revenue1,356,000

Salaries and Wages Payable9,000

Sales Returns and Allowances30,000

Utilities Expense15,300

1. Prepare a multiple-step income statement. (List other revenues before other expenses.)

2. Prepare a retained earnings statement. (List items that increase retained earnings first.)

3. Prepare a classified balance sheet. (List current assets in order of liquidity.)

4. Calculate the profit margin and the gross profit rate. (Round answers to 1 decimal place, e.g. 15.2%)

5. 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 $61,659 and expenses by $84,201. 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.)