Question

a) Using the accounts below as appropriate, produce a complete Multi-step Income Statement. Remember to label every number.
b) Calculate the Gross Profit ratio and the Profit Margin ratio.
Hint: not all of the accounts below are needed.
Account		General Ledger Balance
Accounts Receivable		$ 2,500,000
Cost of goods sold		35,000,000
Depreciation expense		1,750,000
Gain on sale of land		2,500,000
General and Administrative Expenses		5,000,000
Interest Income		3,500,000
Interest Expense		6,000,000
Inventory		7,000,000
Land		100,000,000
Common Stock (2 million shares outstanding)		40,000,000
Sales Revenue		70,000,000
Selling Expenses		12,500,000
Income Tax Expense		4,725,000
Prepaid Expenses		1,500,000
Unearned Revenue		1,000,000

Answer 1

a.

Sales revenue	70,000,000
Cost of goods sold	-35,000,000
Gross profit	35,000,000
Operating expenses:
Depreciation expense	-1,750,000
General and Administrative Expenses	-5,000,000
Selling Expenses	-12,500,000
Operating income	15,750,000
Other revenue:
Interest income	3,500,000
Gain on sale of land	2,500,000
	21,750,000
Other expenses:
Interest expense	-6,000,000
Profit before tax	15,750,000
Income tax expense	-4,725,000
Net Income	$11,025,000

b)

Gross profit ratio = Gross profit / Sales revenue

= 35,000,000/70,000,000

= 50%

Profit margin ratio = Net income / Sales revenue

= 11,025,000/70,000,000

= 15.75%

Kindly comment if you need further assistance. Thanks‼!