Question

Big Tommy Corporation is a local grocery store organized seven years ago as a corporation. The book-keeper prepared the following statement (assume that all amounts are correct, but note the incorrect terminology and format):

BIG TOMMY CORPORATION Profit and Loss December 31
	Debit		Credit
Sales			$	520,000
Cost of Goods Sold	$	319,000
Sales Returns and Allowances		14,000
Sales Discounts		8,500
Salaries and Wages Expense		68,000
Office Expense		23,500
Travel Expenses		1,000
Income Tax Expense		25,800
Net Profit		60,200
Totals	$	520,000	$	520,000

Required:
1.	Prepare a properly formatted multistep income statement that would be used for internal reporting purposes. Treat Sales Returns and Allowances and Sales Discounts as contra-revenue accounts.
2.	Prepare a properly formatted multistep income statement that would be used for external reporting purposes, beginning with the amount for Net Sales.

3.	Compute the gross profit percentage. (Round your answer to 1 decimal place.)

Answer 1

1.

Multiple Income Statement
Sales		520,000
Less:
Sales Returns and Allowances	14,000
Sales Discounts	8500	(22,500)
Net Sales		497,500
Less: Cost of Goods Sold		(319,000)
Gross Profit		178,500
Less:
Salaries and Wages Expense	68,000
Office Expense	23,500
Travel Expenses	1,000
Total selling and general expenses		(92,500)
Income Before Tax		86,000
Less: Income Tax Expense		(25,800)
Net Income		60,200

2.

Net Sales	497,500
Less:Cost of Goods Sold	(319,000)
Gross Profit	178,500
Less:Selling and general expenses	(92,500)
Income Before Tax	86,000
Less: Income Tax Expense	(25800)
Net Income	60,200

3.

Gross Profit = (Gross Profit / Net Sales) * 100

= (178500/ 497500) * 100 = 35.9%