Lowry Department Store is located in midtown Metropolis. During the past several years, net income has been declining because suburban shopping centers have been attracting business away from city areas. At the end of the company’s fiscal year on November 30, 2010, these accounts appeared in its adjusted trial balance.
|
Accounts Payable |
$23,300 |
|
Accounts Receivable |
$17,200 |
|
Accumulated Depreciation—Delivery Equipment |
20,000 |
|
Accumulated Depreciation—Store Equipment |
38,000 |
|
Cash |
8,000 |
|
Common Stock |
35,000 |
|
Cost of Goods Sold |
633,300 |
|
Delivery Expense |
6,200 |
|
Delivery Equipment |
57,000 |
|
Depreciation Expense—Delivery Equipment |
4,000 |
|
Depreciation Expense—Store Equipment |
9,500 |
|
Dividends |
12,000 |
|
Gain on Sale of Equipment |
2,000 |
|
Income Tax Expense |
10,000 |
|
Insurance Expense |
9,000 |
|
Interest Expense |
5,000 |
|
Merchandise Inventory |
26,200 |
|
Notes Payable |
47,500 |
|
Prepaid Insurance |
6,000 |
|
Property Tax Expense |
3,500 |
|
Property Taxes Payable |
3,500 |
|
Rent Expense |
34,000 |
|
Retained Earnings |
14,200 |
|
Salaries Expense |
117,000 |
|
Sales |
904,000 |
|
Salaries Payable |
6,000 |
|
Sales Returns and Allowances |
20,000 |
|
Store Equipment |
105,000 |
|
Utilities Expense |
10,600 |
Additional data: Notes payable are due in 2014.
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 using 20% of net sales. Given the increased incentive, they expect net sales to increase by 15%. As a result, they estimate that gross profit will increase by $37,605 and operating expenses by $62,595. Compute the expected new net income.