Parkland Department Store is located near the Lyndale Shopping Mall. At the end of the company"s fiscal year on December 31, 2012, the following accounts appeared in its adjusted trial balance.
|
Accounts Payable
|
$ 73,300
|
|
Accounts Receivable
|
45,500
|
|
Accumulated Depreciation-Buildings
|
52,500
|
|
Accumulated Depreciation-Equipment
|
42,600
|
|
Buildings
|
190,000
|
|
Cash
|
28,000
|
|
Common Stock
|
140,000
|
|
Cost of Goods Sold
|
412,000
|
|
Depreciation Expense
|
23,400
|
|
Dividends
|
15,000
|
|
Equipment
|
100,000
|
|
Gain on Disposal of Plant Assets
|
4,300
|
|
Income Tax Expense
|
15,000
|
|
Insurance Expense
|
8,400
|
|
Interest Expense
|
7,000
|
|
Interest Payable
|
2,000
|
|
Inventory
|
43,000
|
|
Mortgage Payable
|
62,500
|
|
Prepaid Insurance
|
2,400
|
|
Maintenance and Repairs Expense
|
$ 6,200
|
|
Retained Earnings
|
19,200
|
|
Salaries and Wages Expense
|
111,000
|
|
Sales Revenue
|
626,000
|
|
Salaries and Wages Payable
|
3,500
|
|
Sales Returns and Allowances
|
8,000
|
|
Utilities Expense
|
11,000
|
Additional data: $20,000 of the mortgage payable is due for payment next year.
Instructions
(a) Prepare a multiple-step income statement, a retained earnings statement, and a classified balance sheet.
(b) Calculate the profit margin ratio and the gross profit rate.
(c) The vice president of marketing and the director of human resources have developed a proposal whereby the company would compensate the sales force on a strictly commission basis. Given the increased incentive, they expect net sales to increase by 25%. As a result, they estimate that gross profit will increase by $50,500 and expenses by $27,800. Compute the expected new net income. (Hint: You do not need to prepare an income statement.) Then, compute the revised profit margin ratio and gross profit rate. Comment on the effect that this plan would have on net income and the ratios, and evaluate the merit of this proposal.