Preparing an Income Statement and Computing the Gross Profit Percentage and Receivables Turnover Ratio with Discounts, Returns, and Bad Debts – Perry Corporation is a local grocery store organized seven years ago as a corporation. At that time, a total of 10,000 shares of common stock were issued to the three organizers. The store is in an excellent location, and sales have increased each year. At the end of 2012, the bookkeeper prepared the following statement (assume that all amounts are correct; note the incorrect terminology and format):
|
PERRY CORPORATION |
||
|
Debit |
Credit |
|
|
Sales |
$184,000 |
|
|
Cost of goods sold |
$98,000 |
|
|
Sales returns and allowances |
9,000 |
|
|
Selling expense |
17,000 |
|
|
Administrative and general expense |
18,000 |
|
|
Bad debt expense |
2,000 |
|
|
Sales discounts |
8,000 |
|
|
Income tax expense |
10,900 |
|
|
Net profit |
21,100 |
|
|
Totals |
$184,000 |
$184,000 |
Required:
1. Beginning with the amount of net sales, prepare an income statement (showing both gross profit and income from operations). Treat sales discounts as a contra-revenue.
2. The beginning and ending balances in accounts receivable were $16,000 and $18,000, respectively. Compute the gross profit percentage and receivables turnover ratio and explain their meaning.