Question

QUESTION 12 Presented below is information for Zales Company for the month of January 2014 Cost of goods sold $280,000 Freight-out 7,000 Insurance expense 12,000 Salaries and wages expense 42,000 Rent expense Sales discounts Sales returns and allowances Sales revenue $35,000 8,000 13,000 421,000 Instructions (a) Prepare a multiple-step income statement. (b) Calculate the profit margin and the gross profit rate.

Answer 1

Solution

(a)

Zales Company
Multi-step Income Statement
For the month ending on 31st January, 2014
Particulars	Amount ($)	Amount ($)
Sales Revenue	4,21,000.00
Less: Sales Discounts	-8,000.00
Less: Sales Returns and Allowances	-13,000.00
Net Sales		4,00,000.00
Less: Cost of Goods Sold		-2,80,000.00
Gross Profit		1,20,000.00
Less: Operating Expenses
Selling Expenses
- Freight-out	7,000.00
Total Selling Expenses	7,000.00
General and Administrative Expenses
- Insurance Expenses	12,000.00
- Salaries and Wages Expenses	42,000.00
- Rental Expenses	35,000.00
Total General and Administrative Expenses	89,000.00
Total Operating Expenses		-96,000.00
Income from Operations		24,000.00
Other Non-operating Incomes and Expenses		-
Net Income		24,000.00

(b)

Gross Profit =  $ 1,20,000

Net Profit = $ 24,000

Net Sales = $ 4,00,000

Net Profit Margin = (24000/400000) x 100 = 6%

Gross Profit Rate = (120000/400000) x 100 = 30%