5-45PGA - Horngren'S Financial And Managerial Accounting

Question

The records of Grade A Beef Company list the following selected accounts for the quarter ended September 30, 2018:

Interest Revenue \( 900                                         Accounts Payable \) 17,000

Merchandise Inventory 46,300                           Accounts Receivable 33,500

Notes Payable, long-term 47,000                       Accumulated Depreciation—    Equipment 36,500

Salaries Payable 2,600                                          Common Stock 38,000

Net Sales Revenue 294,000                                 Retained Earnings 3,610

Rent Expense (Selling) 16,700                            Dividends 15,000

Salaries Expense (Administrative) 2,500         Cash 7,300

Office Supplies 5,800                                            Cost of Goods Sold 161,700

Unearned Revenue 13,800                                  Equipment 131,000

Interest Expense 2,300                                         Interest Payable 900

Depreciation Expense—Equipment (Administrative) 1,310 

Rent Expense (Administrative) 7,400

Utilities Expense (Administrative) 4,500           Salaries Expense (Selling) 5,000

Delivery Expense (Selling) 3,100                       Utilities Expense (Selling) 10,900

Requirements 

1. Prepare a single-step income statement. 

2. Prepare a multi-step income statement. 

3. J. Douglas, manager of the company, strives to earn a gross profit percentage of at least 50%. Did Grade A Beef achieve this goal? Show your calculations

Step-by-Step Solution

Answer

The net income of the company is $79,490.

Meaning of Gross Profit Percentage

In accounting, gross profit denotes the amount of profit left after settling all the costs associated with the sold goods. At the same time, gross profit percentage is the mathematical representation of the gross profit earned by a business in terms of percentage. 

Preparation of single-step income statement

Grade A Beef Company
Single-step Income Statement
for the quarter ended September 30, 2018
Particulars	Amounts ($)
Revenues
Net sales revenue	294,000
Add: Interest revenue	900
Total revenues	294,900
Less: Expenses
Cost of goods sold	(161,700)
Selling expenses	(35,700)
Administrative expenses	(15,710)
Interest expense	(2,300)
Net income	$79,490

Preparation of multi-step income statement

Grade A Beef Company
Single-step Income Statement
for the quarter ended September 30, 2018
Particulars	Amounts ($)
Net sales revenue	294,000
Less: Cost of goods sold	(161,700)
Gross profit	132,300
Less: Operating expenses
Selling expenses
Rent expense	(16,700)
Delivery expense	(3,100)
Salaries expense	(5,000)
Utilities expense	(10,900)
Administrative expense
Salaries expense	(2,500)
Depreciation on equipment	(1,310)
Utilities expense	(4,500)
Rent expense	(7,400)
Income from operations	80,890
Add: Other revenues and gains
Interest revenue	900
Less: Other expenses and losses
Interest expense	(2,300)
Net income	$79,490

Computation of gross profit percentage

$$\begin{gathered} \text{Gross Profit Percentage} = \frac{\text{Gross Profit}}{\text{Net Sales Revenue}}\times 100 \\ = \frac{\$132,300}{\$294,000} \\ =45\% \end{gathered}$$

Comment: The Company’s gross profit percentage is less than the desired percentage. Hence, the company did not achieve its goal of attaining a 50% gross profit percentage