Shaw Corportation Dec 31st 2010 *Prepare a Multi-step income statement* *Compute
ID: 2355010 • Letter: S
Question
Shaw Corportation Dec 31st 2010 *Prepare a Multi-step income statement* *Compute profit margin* * what other factors needed to assess profitability?* Advertising expense $1,500 / commissions expenses 2,415 / cost of goods sold 29,200 / depreciation expense-office building 2,900 / income tax expense 1,540 / insurance expense- salespersons auto 2,250 / interest expense 1,400 / interest revenue 1,340 / rent revenue 6,700 / salaries and wages expense- office 12,560 / sales revenue 48,300 / supplies expense- office 890Explanation / Answer
Multiple-step income statement:
SHAW CORPORATION
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2010
Sales $ 48,300
Cost of goods sold 29,200
Gross profit $ 19,100
Operating expenses:
Selling expenses:
Advertising $ 1,500
Commissions 2,415
Insurance—salesperson’s auto 2,250
Total selling expense $ 6,165
General and administrative
expenses:
Depreciation—office building $ 2,900
Salaries and wages—office 12,560
Supplies—office 890
Total general and administrative
expense 16,350
Total operating expense 22,515
Income from operations $ (3,415)
Other revenues and expenses:
Interest expense $ 1,400
Interest revenue 1,340
Rent revenue 6,700
Excess of other revenues over
other expenses 6,640
Income before taxes $ 3,225
Income tax expense 1,540
Net income $ 1,685
2. Gross profit ratio = Gross profit/Sales revenue
= $19,100/$48,300 = 39.5%
3. The gross profit ratio tells the reader of the income statement that for every $1 of sales, Shaw recovers $.395, or 39.5 cents, after deducting product cost (60.5 cents of every dollar). The ratio of gross profit to cost of sales, or markup on cost, is 39.5/60.5, or 65.3%.
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