You have been provided with the following selected accounts for Severn Limited for the year ended June 30, 2015:

Inventory, July 1, 2014.............................$ 520,000

Purchases.............................................6,280,000

Accounts receivable..................................660,000

Sales..................................................7,800,000

Purchase returns and allowances....................240,000

Freight in................................................80,000

Administrative expenses.............................740,000

Land..................................................1,400,000

Sales discounts........................................100,000

Interest expense........................................20,000

Interest revenue.........................................40,000

Accounts payable.....................................540,000

Selling expenses.......................................120,000

Cash....................................................500,000

Common shares.......................................300,000

Severn conducted a physical inventory count on June 30, 2015. Inventory on hand at that date was determined to be $600,000.

Instructions

(a) Prepare a partial multiple-step income statement for the year ended June 30, 2015, through to gross profit.

(b) Prepare the period-end adjusting journal entry to update the Cost of Goods Sold and Merchandise Inventory accounts.

(c) Calculate the gross profit margin. If the industry average gross profit margin is 26%, how does Severn's gross profit margin compare?