Question

The adjusted trial balance of McCoy Company included the following selected accounts:

		Debit		Credit
Sales Revenue				$645,000
Sales Returns and Allowances		$50,000
Sales Discounts		9,500
Cost of Goods Sold		396,000
Freight-Out		2,000
Advertising Expense		15,000
Interest Expense		19,000
Salaries and Wages Expense		84,000
Utilities Expense		23,000
Depreciation Expense		3,500
Interest Revenue				25,000

Use the above information to prepare a multiple-step income statement for the year ended December 31, 2017. (List other revenues before other expenses.)

Calculate the profit margin and gross profit rate. (Round answers to 1 decimal places, e.g. 15.2%.)

Answer 1

Income Statement

Sales revenue	645,000
Sales return and allowances	-50,000
Sales discount	-9,500
Net sales	585,500
Cost of goods sold	-396,000
Gross profit	189,000
Operating expenses :
Freight out	-2,000
Advertising expense	-15,000
Salaries and wages expense	-84,000
Utilities expense	-23,000
Depreciation expense	-3,500
Operating profit	62,000
Other revenues :
Interest revenue	25,000
Other expenses :
Interest expense	-19,000
Net income	$68,000

Profit margin = Net income/Net sales

= 68,000/585,500

= 11.6%

Gross profit rate = Gross profit/Net sales

= 189,000/585,500

= 32.3%

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