Question

I will thumbs up the correct answer. Prefer the answer done through Excel, thanks.

MGMT FFAC Ch 5: Exercises Part A. The following information is available for the Entity A: Sales revenue $618,000 Sales returns and allowances 15,000 Sales discounts 5,000 Cost of goods sold 398,000 Operating expenses 114,000 Interest expense 15,000 Loss on sale of equipment 4,000 Interest revenue 20,000 Instructions 1. Use the above information to prepare a multiple-step income statement for the year ended December 31, 2020. The income tax rate is 30%. 2. Compute the profit margin and the gross profit rate. 3. Suggest at least three ways these measures might be improved and net income increased

Answer 1

Amount $ 5,98,000.00 $ 3,98,000.00 $ 2,00,000.00 Entity A INCOME STATEMENT For the year ended December 31, 2020 Particulars Reference Calculation Sales Revenue: Total Sales $ 6,18,000.00 Less: Sales Return and allowances B $ 15,000.00 Less: Sales Discount $ 5,000.00 Net Sales Revenue DEA-B-C Less: Cost of Goods sold Total Cost of Goods sold Gross Profit FED-E Less: Operating Expenses Total Operating Expenses Operating Income HOG-F Add: Non operating Income Interest revenue $ 20,000.00 Less: Non Operating Expenses Interest expense $ 15,000.00 Loss on Sale of equipment $ 4,000.00 Net Other Income and Expenses L=I-J-K Earning Before Tax M=H+L Less: Income Tax NEM* 30% Net Income O=M-N $ 1,14,000.00 $ 86,000.00 - - $ 1,000.00 $ 87,000.00 $ 26,100.00 $ 60,900.00

2. Profit Margin = Net Income / Net Sales = $60,900 / $ 598,000 = 10.18%

Gross profit rate = Gross Profit / Net Sales = $200,000 / $598,000 = 33.44%

3. Ways to improve Net Income

a) Increase sales and reduce sales discount

b) Reduce Cost of Goods sold, by negotiating with suppliers and improving efficiency of production.

c) Operating expenses should be audited and improvements should be made to make possible optimum utilization of resources