Question

The following amounts appeared on Plymouth Electronics’ adjusted trial balance as of December 31, 2020.

	Debit			Credit
Merchandise inventory	$	18,700
Other assets		479,785
Liabilities				$	304,370
Celine Plymouth, capital					242,765
Celine Plymouth, withdrawals		66,200
Sales					934,000
Sales discounts		13,780
Sales returns and allowances		4,915
Interest income					640
Cost of goods sold		715,000
Sales salaries expense		78,400
Office salaries expense		55,700
Rent expense, selling space		32,200
Rent expense, office space		2,200
Store supplies expense		1,540
Office supplies expense		695
Depreciation expense, store equipment		8,110
Depreciation expense, office equipment		1,960
Insurance expense		1,960
Totals	$	1,481,775		$	1,481,775

Required:
1. Prepare a 2020 classified multiple-step income statement for Plymouth Electronics.

2. Prepare a single-step income statement.

Analysis Component:
Calculate the gross profit ratio for the year ended December 31, 2020, and compare it to the prior year, commenting on whether the change was favourable or unfavourable. The gross profit ratio for Plymouth Electronics’ year ended December 31, 2019, was 32%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

1. Multi-step income statement:

Plymouth Electronics
Income statement
For the year ended December 31,2020
Revenues:
Sales			934,000
Less: Sales discount		13,780
Sales returns and allowances		4,915	-18,695
Net sales			915,305
Cost of goods sold			-715,000
Gross profit			200,305
Operating expenses:
Selling expenses:
Salaries expense	78,400
Rent expense	32,200
Store supplies expense	1,540
Depreciation expense	8,110	120,250
Administrative expenses:
Salaries expense	55,700
Rent expense	200
Supplies expense	695
Depreciation expense	1,960
Insurance expense	1,960	60,515
Total Operating expenses			-180,765
Operating income			19,540
Non-operating income and Expenses:
Interest income			640
Net income			20,180

2. Single-step income statement:

Plymouth Electronics
Income statement
For the year ended December 31,2020
Revenues:
Net sales	915305
Interest income	640
Total revenues		915945
Expenses:
Cost of goods sold	715000
Salaries expense	134,100
Rent expense	32,400
Supplies expense	2,235
Depreciation expense	10,070
Insurance expense	1,960
Total expenses		895,765
Net income		20,180

3.Gross profit ratio = Gross profit ÷ Sales = 200,305/915,305 = 21.884%

Comment: It is Unfavorable because gross profit in 2020 is lower than the gross profit of previous year 2019.