Problem:
The ledgers of Mid City Galleries Inc. contain the following balances as of December 31, 2006.
Advertising expense $ 123,000
Commissions expense on art sales 1,200,000
Depreciation expense (administrative) 98,000
Dividend revenue 50,000
Insurance expense 600,000
Interest expense 98,000
Inventory, January 1 1,650,000
Inventory, December 31 1,424,000
Loss on the sale of office equipment 21,300
Miscellaneous administrative expenses 53,200
Miscellaneous selling expenses 39,000
Net purchases 3,200,000
Net sales 9,275,000
Rent expense 808,000
Freight-in 232,000
Freight-out 82,500
Utilities expense 117,000
Wages and salaries 1,264,000
Income taxes are calculated at 30 percent of income. The galleries had 90,000 shares of common stock outstanding for the entire year. Total assets amounted to $7,509,000, and common stockholder's equity was $3,975,400.
Instructions:
(a) Prepare in good form a multiple-step income statement for Mid City Galleries.
(b) Calculate three measures of profitability and one ratio of solvency.