Problem

Preparation and Interpretation of a Merchandisign Company’s income statementHendry's B...

Preparation and Interpretation of a Merchandisign Company’s income statement

Hendry's Boutique is a retail clothing store for women. The store operates out of a rented building in Storm Lake, Iowa. Shown below is the store's adjusted year-end trial balance dated December 31,2011.

HENDRY'S BOUTIQUE

ADJUSTED TRIAL BALANCE

DECEMBER 31 , 2011

Cash

$ 15,200

 

Accounts receivable

2,600

 

Merchandise inventory

17,500

 

Prepaid rent

1,800

 

Office supplies

900

 

Office equipment

41,000

 

Accumulated depreciation: office equipment

 

$ 12,000

Accounts payable

 

12,750

Sales taxes payable

 

3,200

Capital stock

 

18,000

Retained earnings

 

21 ,050

Sales

 

226,000

Sales returns and allowances

2,500

 

Cost of goods sold

100,575

 

Purchase discounts lost

*250

 

Utilities expense

4,120

 

Office supply expense

520

 

Depreciation expense: office equipment

2,750

 

Rent expense

6,100

 

Insurance expense

 

900

Salaries expense

88,095

 

Income taxes expense

8,190

 

 

$293,000

$293,000

Instructions

a.       Prepare an income statement for Hendry's Boutique dated December 31,2011.


b.       Compute the store's gross profit margin as a percentage of net sales.


c.        Do the store's customers seem to be satisfied with their purchases? Defend your answer.


d.       Explain how you can tell that the business records inventory purchases net of any purchase discounts.


e.        The store reports sales taxes payable of $3,200 in its adjusted trial balance. Explain why it does not report any sales taxes expense.


f.       Which accounts appearing in the store's adjusted trial balance comprise its operating cyclel

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