Question

Wolford 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 company's fiscal year on November 30, 2017, these accounts appeared in it adjusted trial balance. Accounts Payable Accounts Receivable Accumulated Depreciation-Equipment Cash Common Stock Cost of Goods Sold Freight-Out Equipment Depreciation Expense Dividends Gain on Disposal of Plant Assets Income Tax Expense Insurance Expense Interest Expense Inventory Notes Payable Prepaid Insurance Advertising Expense Rent Expense Retained Earnings Salaries and Wages Expense Sales Revenue Salaries and Wages Payable Sales Returns and Allowances Utilities Expense $ 31,088 19,952 78,880 9,280 40,600 712,588 7,192 182.120 15,660 13,920 2,320 11.600 10,440 5,800 30,392 50,460 6,960 38,860 39,440 16,472 135,720 1,048,640 6.960 23.200 12.296

Answer 1

Required 1 :

WOLFORD DEPARTMENT STORE
Income Statement
For the year ended November 30,2017
Sales :
Sales Revenue		$ 1,048,640
Less: Sales Return and allowances		($23,200)
Net sales		$ 1,025,440
less: cost of goods sold		($712,588)
Gross profit		$ 312,852
less: Operating Expenses:
Freight Out	$ 7,192
Depreciation Expense	$ 15,660
Insurance Expense	$ 10,440
Advertising expenses	$ 38,860
Rent Expense	$ 39,440
Salaries and wages expense	$ 135,720
Utilities Expense	$ 12,296
Total operating Expense		($ 259,608)
Income from operations		$ 53,244
Add: Other Revenues and Gains :
Gain on Disposal of plant assets		$ 2,320
Less: other expenses and losses :
Interest expenses		($ 5,800)
Income before income taxes		$ 49,764
Less: Income tax expenses		($ 11,600)
Net income / (loss)		$ 38,164

Required 2 :

WOLFORD DEPARTMENT STORE
Retained Earnings Statement
For the year ended November 30,2017
Retained Earnings December 1,2016	$ 16,472
Add: Net income / (Loss)	$ 38,164
	$ 54,636
Less: Dividends	($ 13,920)
Retained Earnings November 30 ,2017	$ 40,716

Required 3 :

WOLFORD DEPARTMENT STORE
Balance Sheet
As on November 30,2017
ASSETS
Current assets :
Cash	$ 9,280
Accounts receivable	$ 19,952
Inventory	$ 30,392
Prepaid insurance	$ 6,960
Total Currents assets		$ 66,584
Property, Plant and equipment :
Equipment	$ 182,120
Less: Accumulated Depreciation	($78,880)	$ 103,240
Total Assets		$ 169,824
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts Payable	$ 31,088
Salary and wages payable	$ 6,960
Total Currents assets		$ 38,048
Long term liabilities :
Notes Payable		$ 50,460
Total Liabilities		$ 88,508
Stockholder's equity :
Common stock	$ 40,600
Retained Earnings (see required 2)	$ 40,716
Total stockholder's equity		$ 81,316
Total liabilities and stockholder's equity		$ 169,824

Required 4 :

Profit Margin	3.70%
Gross profit rate	3.50%

Explanation is given below :

Profit Margin = Net income / Net sales

Net income = $ 38,164, Net Sales = $ 1,025,440

Profit Margin = $ 38,164 / $ 1,025,440

Profit Margin = 3.7 % (rounded to 1 decimal )

Gross profit rate = Gross profit / Net sales

Gross profit= $ 312,852, Net Sales = $ 1,025,440

Gross profit rate = Gross profit / Net sales

Gross profit rate = $ 312,852 / $ 1,025,440

Gross profit rate = 30.5 % (Rounded to 1 decimal )

Required 4 :

Revised Net income	$ 17,102
Revised Profit Margin	1.50%
Revised Gross profit Rate	30.50%

Explanation is given below :
1) To calculate the Revised net income:
Particulars	Amount($)
Gross profit ($ 312,852+$ 46,914 )	$ 359,766
Less: Total operating expenses ($259,608+ $67,976)	($327,584)
Income from operations	$ 32,182
Add: Other Revenues and Gains :
Gain on Disposal of plant assets	$ 2,320
Less: other expenses and losses :
Interest expenses	($ 5,800)
Income before income taxes	$ 28,702
Less: Income tax expenses	($ 11,600)
Net income / (loss)	$ 17,102
2)Net Sales ($ 1,025,440*115%) = $ 1,179,256
Profit Margin = Net income / Net sales
Net income = $ 17,102, Net Sales = $ 1,179,256
Profit Margin = $ 17,102 / $ 1,179,256
Profit Margin = 1.5 % (rounded to 1 decimal )
3) Gross profit ($ 312,852+$ 46,914 ) = $ 359,766
Gross profit rate = Gross profit / Net sales
Gross profit= $ 359,766, Net Sales = $ 1,179,256
Gross profit rate = Gross profit / Net sales
Gross profit rate = $ 359,766 / $ 1,179,256
Gross profit rate = 30.5 % (Rounded to 1 decimal )