Question

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

BIG TOMMY CORPORATION
Profit and Loss December 31
	Debit	Credit
Net Sales		$404,000
Cost of Goods Sold	$279,000
Salaries and Wages Expense	58,000
Office Expenses	16,000
Travel Expenses	1,000
Income Tax Expense	15,000
Net Profit	35,000
Totals	$404,000	$404,000

Required:

1. Prepare a properly formatted multistep income statement that would be used for external reporting purposes.

2. Compute and interpret the gross profit percentage (using the formula shown in this chapter and rounding to one decimal place).

Answer 1

Big Tommy Corporation

Income Statement

For the year ended December 31

particular Debit credit

Sales. 404,000

Less: cost of good sold . (279000)

Gross profit . $ 125000 Operating expense

​​​​​​ Salaries and wages expense . 58000

Travel expense . 1000

Administrative expenses

Office expense . 16000 ($75,000)

Income from operation . $ 50,000

Other expenses and loses

Income before income Tax . 50,000

Income tax expense . (15000)

Net income for the year . $ 35,000

Answer 2

Gross profit percentage= Gross profit/Total sale*100% = 125000/404000*100%

= . 31.4%

Interpretation : Generally the higher the gross profit margin the better. As it shows 31.4% margin it's fair enough for investing purposes .