Question

Alana Inc. operates a retail operation that purchases and sells home entertainment products. The company purchases all merchandise inventory on credit and uses a periodic inventory system. The Accounts Payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for the fiscal years 2017 through 2020, inclusive. 

Calculate missing amounts and assess profitability. 

Instructions 

a. Calculate the missing amounts. 

b. Sales declined over the 3-year fiscal period, 2018-2020. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin (Net income - Sales revenue) for each fiscal year to help support your answer. (Round to one decimal place.)

Answer 1

ans a
	2018	2019	2020
Sales Revenue S	55000	49000	47000
		(35200+13800)
Cost of good sold	16700	13800	14300
	(55000-38300)
Gross profit G	38300	35200	32700	(47000-14300)
Operating expenses	34900	32700	28600
		(35200-2500)
Net IncomeN	3400	2500	4100
	(38300-34900)		(32700-28600)
Inventory	9700	8100	7000
	7200+16700-14200		8100+13200-14300
Accounts payable	3600	2500	2100
			2500+13200-13600
Purchases of mercandise inventory	14200	12200	13200
		13800+8100-9700
Cash payment to suppliers	13800	13300	13600
	3200+14200-3600	3600+12200-2500
ans b
Gross profit ratio G/S*100	69.6	71.8	69.6
Net Income ratio N/S*100	6.2	5.1	8.7
No, it does not mean that profitablilty is also declined as Gross profit ratio incraese in 2019 and was
same in 2020 as of 2018
Net Income ratio decreased in 2019 but increased in 2020
If any doubt please comment