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# Answer of Chapter 17 - PROBLEMS Prob 171A 1 DOANE INC...

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PROBLEMS Prob. 17–1A 1. DOANE INC. Comparative Income Statement For the Years Ended December 31, 2008 and 2007 Increase (Decrease ) 2008 2007 Amount Percent Sales ................................................. \$ 91,500 \$ 73,200 \$ 18,300 25.0% Sales returns and allowances ........ 1,440 1,200 240 20.0% Net sales .......................................... \$ 90,060 \$ 72,000 \$ 18,060 25.1% Cost of goods sold .......................... 50,400 42,000 8,400 20.0% Gross profit ...................................... \$ 39,660 \$ 30,000 \$ 9,660 32.2% Selling expenses ............................. \$ 16,560 \$ 14,400 \$ 2,160 15.0% Administrative expenses ................ 10,800 9,600 1,200 12.5% Total operating expenses ............... \$ 27,360 \$ 24,000 \$ 3,360 14.0% Income from operations ................. \$ 12,300 \$ 6,000 \$ 6,300 105.0% Other income ................................... 600 600 0 0.0% Income before income tax .............. \$ 12,900 \$ 6,600 \$ 6,300 95.5% Income tax expense ........................ 2,880 1,440 1,440 100.0% Net income ....................................... \$ 10,020 \$ 5,160 \$ 4,860 94.2% 2. The profitability has significantly improved. Net sales have increased by 25.1% over the 2007 base year. In addition, however, cost of goods sold, sell- ing expenses, and administrative expenses grew at a slower rate. Increasing sales combined with costs that increase at a slower rate results in strong earnings growth. In this case, net income grew 94.2% over the base year. 480

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Prob. 17–2A 1. DUSAN WATER SUPPLIES INC. Comparative Income Statement For the Years Ended December 31, 2008 and 2007 2008 2007 Amount Percent Amount Percent Sales .................................................... \$ 255,000 102.0% \$ 214,000 101.9% Sales returns and allowances ........... 5,000 2.0 4,000 1.9 Net sales ............................................. \$ 250,000 100.0% \$ 210,000 100.0% Cost of goods sold ............................. 142,500 57.0 121,800 58.0 Gross profit ......................................... \$ 107,500 43.0 % \$ 88,200 42.0 % Selling expenses ................................ \$ 100,000 40.0% \$ 50,400 24.0% Administrative expenses ................... 20,000 8.0 16,800 8.0 Total operating expenses .................. \$ 120,000 48.0 % \$ 67,200 32.0 % Income from operations .................... \$ (12,500) (5.0)% \$ 21,000 10.0% Other income ...................................... 6,250 2.5 4,200 2.0 Income before income tax ................. \$ (6,250) (2.5)% \$ 25,200 12.0% Income tax expense (benefit) ............ (2,500 ) 1.0 8,400 4.0 Net income (loss) ............................... \$ (3,750 ) (1.5 )% \$ 16,800 8.0 % 2. The net income as a percent of sales has declined. All the costs and expenses, other than selling expenses, have maintained their approximate cost as a percent of sales relationship between 2007 and 2008. Selling ex-
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