Advertising expense $ 1,500 Commissions expense 2,415 Cost of goods sold 29,200
ID: 2386282 • Letter: A
Question
Advertising expense $ 1,500Commissions expense 2,415
Cost of goods sold 29,200
Depreciation expense—office building 1,540
Income tax expense Insurance expense—salesperson’s
auto 2,250
Interest expense $1,400
Interest revenue 1,340
Rent revenue 6,700
Salaries and wages expense—office 12,560
Sales revenue 48,300
Supplies expense—office 890
Assume that Shaw Corpora- tion classifies all operating expenses into two categories: (1) selling and (2) general and administrative.
1. Prepare a multiple-step income statement for the year ended December 31, 2010.
2. What advantages do you see in this form for the income statement?
3.Compute Shaw’s profit margin.
4.Comment on Shaw’s profitability. What other factors need to be taken into account
to assess Shaw’s profitability?
Explanation / Answer
Sales $48,300
Cost of goods sold 29,200
Gross profit $ 19,100
Operating expenses:
Selling expenses:
Advertising $ 1,500
Commissions 2,415
Insurance—salesperson’s auto 2,250
Total selling expenses $ 6,165
General and administrative expenses:
Depreciation—office building $ 2,900
Salaries and wages—office 12,560
Supplies—office 890
Total general and administrative expenses 16,350
Total operating expenses 22,515
Income from operations $ (3,415)
Other revenues and expenses:
Interest expense $ 1,400
Interest revenue 1,340
Rent revenue 6,700
Excess of other revenues over other expenses 6,640
Income before taxes $ 3,225
Income tax expense 1,540
Net income $ 1,685
Shaw’s profit margin.= 3.49%
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