HW_05_Solutions

HW_05_Solutions - Solutions to Homework 5 Raffaele B. Mari,...

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Solutions to Homework 5 Due October 19, 2010 Raffaele B. Mari, CPA Econ 25 – Econ of Acctg. EXERCISE 5-8 (a) MARIS COMPANY Income Statement For the Year Ended December 31, 2010 Net sales . ............................................ $2,050,000 Cost of goods sold . ............................ 987,000 Gross profit. ........................................ 1,063,000 Operating expenses Selling expenses . ....................... $490,000 Administrative expenses. ........... 435,000 Total operating expenses . .. 925,000 Income from operations . ................... 138,000 Other revenues and gains Interest revenue . ......................... 65,000 Other expenses and losses Loss on sale of equipment . ........ $83,500 Interest expense . ........................ 68,000 151,500 86,500 Income before income taxes . ............ 51,500 Income tax expense . .......................... 20,000 Net income . ......................................... $ 31,500 (b) Profit margin ratio: $31,500 ÷ $2,050,000 = .015 Gross profit rate: $1,063,000 ÷ $2,050,000 = .52 (c) During the current year Maris had a loss on the sale of equipment of $83,500. This loss is not part of operating income, and it is most likely a non-recurring event, meaning that we wouldn’t expect it to happen again next year. If we ignore this loss, then Maris Company’s net income would have been $115,000 ($31,500 + $83,500) and its profit margin ratio would have been 5.6% ($115,000 ÷ $2,050,000). Therefore, while the loss is not good news, it is less of a concern than a similar drop in income from operations.
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Solutions to Homework 5 Due October 19, 2010 Raffaele B. Mari, CPA Econ 25 – Econ of Acctg. PROBLEM 5-4A (a) LOWRY DEPARTMENT STORE Income Statement For the Year Ended November 30, 2010 Sales revenues Sales . .............................................. $904,000 Less: Sales returns and allowances . ......................... 20,000 Net sales . ........................................ 884,000 Cost of goods sold . ............................... 633,300 Gross profit . ........................................... 250,700 Operating expenses Salaries expense . .......................... $117,000 Rent expense . ................................ 34,000 Utilities expense . ........................... 10,600 Depreciation expense—store equipment . ................................. 9,500 Insurance expense .
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This note was uploaded on 12/13/2011 for the course ECON 15A taught by Professor Shirey during the Fall '08 term at UC Irvine.

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HW_05_Solutions - Solutions to Homework 5 Raffaele B. Mari,...

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