Question

Cross Shop is a small general store located inside a hospital. Cross Shop uses a periodic inventory system. Cross Shop adjusts and closes its accounts monthly. Part I (10 marks) Below is the extracted information from the adjusted trial balance as at 31 January 2019 of the Company. Credit $ Debit $ Inventory Supplies Purchases 40,000 2,000 259,000 495,000 o Sales Sales Returns Unearned sales revenue Interest expense Salaries expense Insurance expense Rent expense Income taxes expense 20,000 31,000 od dob 8,000 12,500 2,000 60,000 20,500 A physical inventory taken as at 31 January 2019 indicates goods costing $14,000 remains in stock. Required: (a)(i) Prepare the Income Statement for Cross Shop, showing the captions with figures of net sales, gross profit, profit before tax and profit after tax for the month ended 31 January 2019. (8 marks) (2 marks) (ii) Compute the gross profit rate for the month of January 2019.

Answer 1

(a) (i)Income Statement of Cross Shop for the year end 31 January 2019

Particular	Amount
Revenues
Sales	$495000
Total Revenues	$495000
Sales Return	($20000)
Net Sales	$475,000
Gross Profit	$475,000
Expenses:
Supplies	$2000
Interest Expenses	$8000
Salaries Expenses	$12500
Insurance Expenses	$2000
Rent Expenses	$60000
Total Expenses	$84500
Net Income before Taxes ($475000-$84500)	$390500
Less Income tax Expenses	($20500)
Profit after Tax	$370000

(ii) Gross Profit Rate = Gross Profit/Net Sales

=$475000/$475000

=1