Question

(TCOs B and D) The following items are taken from the financial statements of Ashe Company for 2015.

Equipment	$100,000
Accounts Receivable	12,000
Accounts Payable	9,000
Cost of Goods Sold	72,000
Utilities Expense	11,000
Depreciation Expense	17,000
Insurance Expense	9,000
Common Stock	200,000
Dividends	12,000
Rent Expense	3,000
Note Payable (due 2014)	40,000
Advertising Expense	14,000
Prepaid Insurance	17,000
Retained Earnings (beginning)	44,000
Accumulated Depreciation	50,000
Salaries Expense	60,000
Salaries Payable	3,500
Net Sales	205,000
Supplies	4,000
Supplies Expense	5,000

Instructions

(a) Calculate the net income. (18 points)
(b) Calculate the balance of retained earnings that would appear on a balance sheet at December 31, 2015. (7 points)
(c) Calculate the gross profit percentage. (5 points)

Answer 1

a)

Net sales		$ 205,000
Less: Cost of goods sold		$    72,000
Gross profit		$ 133,000
Less: Operating expenses
Utilities expenses	$ 11,000
Depreciation expense	$ 17,000
Insurance expense	$    9,000
Rent expense	$    3,000
Advertising expense	$ 14,000
Salaries expense	$ 60,000
Supplies expense	$    5,000
Total operating expenses		$ 119,000
Net income		$    14,000

b)

Beginning retained earnings	$   44,000
Add: Net income	$   14,000
Less: Dividends	$ (12,000)
Ending retained earnings to be reported in BS	$   46,000

c) Gross profit percentage = Gross profit / net sales

Gross profit percentage = $133,000 / $205,000

Gross profit percentage = 64.878%

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