Question

Prepare a multi-step income statemenr and compute the gross profit rate and profit margin ratio for the following.

Part II (20 points) The adjusted trial balance of Baratheon Tool & Die Company included the following selected accounts: I$ $ $ Accounts Payable Accounts Receivable Accumulated Depreciation Advertising Expense 45,600 Dividends Payable 39,000 Freight-Out 282,000 Gain on Sale of Investment 12,000 Income Tax Expense 7.500 Property Taxes Payable 11,600 Retained Earnings 4,600 | Salaries Expense 14,000 36,000 388,000 24,000 Sales 1,772,000 Building 36,000 Cash 4,000 Common Stock Cost of Goods Sold 400,000 Insurance Expense 20,600 Sales Commissions Expense 15,600 Interest Expense 11,200 Sales Commissions Payable 56,000 Inventory 62,800 Sales Discounts 1,040,000 Notes Payable 104,000 Sales Retums and Allowances → 24,400 Prepaid Insurance 1 5,200 Store Equipment 30,000 Property Tax Expenset 15,200 Utilities Expense 18,000 52,000 Depreciation Expense Dividends Declared 128,000 28,000 Required: Part A: Prepare a multiple-step Income Statement in proper accounting form at December 31, 2019. Use the statement form provided on the facing page (17 of 20 points). Part B: In the space below, compute the Gross Profit Rate and Profit Margin Ratio for Baratheon Tool & Die Company. Be sure to show and label the formula, as well as your computational work, for each ratio (3 of 20 points). PART IL-B COMPUTATIONAL WORK BELOW

Answer 1

A)

Multi step income statement

Net sales:
Sales	1,772,000
Sales returns and allowances	- 52,000
Sales discounts	- 18,000
Net sales revenue		1,702,000
Cost of goods sold		- 1,040,000
Gross profit		662,000
Operating expenses:
Advertising expense	- 12,000
Depreciation expense	- 24,400
Freight out	- 11,600
Insurance expense	- 20,600
Property tax expense	- 15,200
Salaries expense	- 388,000
Sales commission expense	- 36,000
Utilities expense	- 28,000
Total Operating expenses		- 535,800
Operating profit		126,200
Other revenues:
Gain on sale of investment		4,600
Other expenses:
Interest expense		- 11,200
Profit before tax		119,600
Income tax expense		- 24,000
Net income		$95,600

B)

Gross profit rate = Gross profit/Net sales

= 662,000/1,702,000

= 38.9%

Profit margin ratio = Net income/Net sales

= 95,600/1,702,000

= 5.62%

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