Problem

Preparing an Income Statement and Computing t he Gross Profit Percent age and ReceivablesT...

Preparing an Income Statement and Computing t he Gross Profit Percent age and Receivables

Turnover Ratio with Discounts, Ret urns, and Bad Debts (AP6-4)

Tungsten Company. Inc., sells heavy construction equipment. There are 10.000 shares of capital stock outstanding. The annual fiscal period ends on December 31. The following condensed trial balance was taken from the general ledger on December 31, 2011:

Account Titles	Deb it	Credit
Cash	5 33.600
Account s receivable (net	14,400
1nventory, ending	52,00
Operational assets	40,00
Accumulated depreciation		$16,800
Liabilities		24,000
Capital stock		72,000
Retained earnings. January 1. 2011		9,280
Sales revenue		147,100
Sales return s and allowances	5,600
Cost of goods sold	78,400
Selling expense	14,100
Administrative expense	15,400
Bad debt expense	1,600
Sales discounts	6,400
Income tax expense	7,680
Totals	$269,180	$269,180

Required:

1. Beginning with the amount for net sales, prepare an income statement (showing both gross profit and income from operations). Treat sales discounts and sales return s and allowances as a contra-revenue.

2. The beginning balance in Accounts Receivable (net) was $ 16,000. Compute the gross profit percentage and receivables turnover ratio and explain their meaning.