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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

Prepare the following statements on separate sheets of paper.

a. Use the following financial information to construct a 2015 income statement with vertical analysis for the Sweets & Treats Candy Company, Inc.: gross sales. $2,249,000; sales returns and allowances. $143,500; sales discounts. $54,290; merchandise inventory. Jan. 1, $875,330; merchandise inventory, Dec. 31, $716,090; net purchases. $546,920; freight in, $11,320; salaries. $319,800; rent, $213,100; depreciation. $51,200; utilities. $35,660; advertising. $249,600; insurance, $39,410; administrative expenses. $91,700; miscellaneous expenses. $107,500; and income tax. $38,450.

Sweets & Treats Candy Company, Inc.

Income Statement, 2015

b. The following data represent Sweets & Treats’ operating results for 2016. Prepare a comparative income statement with horizontal analysis for 2014 and 2015: gross sales. $2,125,000; sales returns and allowances. $126,400; sales discounts. $73,380; merchandise inventory.

Jan. 1, 2016, $716,090; merchandise inventory. Dec. 31, 2016, $584,550; net purchases. $482,620; freight in. $9,220; salaries. $340,900; rent. $215,000; depreciation. $56,300; utilities. $29,690; advertising. $217,300; insurance. $39,410; administrative expenses.

$95,850; miscellaneous expenses. $102,500; and income tax. $44,530.

Sweets & Treats Candy Company. Inc.

Comparative Income Statement. 2015 and 2016

(a)

To determine

To calculate: The vertical analysis of an income statement for Sweats & Treats Candy Company, Inc. for the year December 31,2015 if gross sales are $2,249,000, sales returns and allowances is $143,500, sales discount is $54,290, merchandise inventory is Jan,1,2015 $875,330, merchandise inventory Dec.31,2015 $716,090, net purchases is $546,920, freight in is $11,320, salaries is $319,800, rent is $213,100, depreciation is $51,200, utilities is $35,660, advertising is $249,600, insurance is $39,410, administrative expense is $91,700, miscellaneous expenses is $107,500 and income tax is $38,450.

Explanation

Given Information:

Sweats & Treats Candy Company, Inc. gross sales are $2,249,000, sales returns and allowances is $143,500, sales discount is $54,290, merchandise inventory is Jan,1,2015 $875,330, merchandise inventory Dec.31,2015 $716,090, net purchases is $546,920, freight in is $11,320, salaries is $319,800, rent is $213,100, depreciation is $51,200, utilities is $35,660, advertising is $249,600, insurance is $39,410, administrative expense is $91,700, miscellaneous expenses is $107,500 and income tax is $38,450.

Formula used:

Follow the steps to prepare a vertical analysis of an income statement:

Step 1: Use the percentage formula, Rate=Portion÷Base, to determine the rate of each item on the income statement. Net sales items are used as base and each items as portion.

Step 2: Round each answer to the nearest tenth of a percent.

Step 3: Count the percentage of each statement item in a column to the right of the amount.

Calculation:

Consider the provided information,

Compute the net sales by substituting sales returns and allowances to $143,500 and sales discount to $54,290 and gross sales to $2,249,000.

Net sales=Gross salesSales returns and allowancessales discounts=2,249,000143,50054,290=$2,051,210

Compute percentage of gross sales by substituting gross sales to $2,249,000 and net sales to $2,051,210

%of Net sales=Gross salesNet sales=$2,249,000$2,051,210=1.096=109.6%

And,

% of Net sales=Gross salesSales returns and allowances%sales discount%=109.67.02.6=100%

Compute cost of goods sold by substituting merchandise inventory to Jan,1,2015 $875,330, net purchases to $546,920, freight in to $11,320 and merchandise inventory for Dec.31,2015 to $716,090.

Costs of goods sold=875,330+546,920+11,320716,090=1,433,570716,090=$717,480

And,

% of Costs of goods sold=42.7+26.7+0.534.9=64.934.9=35%

Compute gross margin by substituting net sales to $2,051,210 and cost of goods sold to $717,480

Gross Margin=Net SalesCost of goods sold=2,051,210717,480=$1,333,730

And,

% of Gross Margin=Net Sales%Cost of goods sold%=10035=65%

Compute Total Operating Expenses by substituting salaries to $319,800, rent to $213,100, depreciation to $51,200, utilities to $35,660, advertising to $249,600, insurance to $39,410, administrative expense to $91,700 and miscellaneous expenses to $107,500,

Total Operating Expenses=Salaries+Rent+Depreciation+Utilities+Advertising+Insurance+Administrative Expenses+Miscellaneous expenses=319,800+213,100+51,200+35,660+249,600+39,410+91,700+107,500=$1,107,970

And,

% of Total Operating Expenses=Salaries%+Rent%+Depreciation%+Utilities%+Advertising%+Insurance%+Administrative Expenses%+Miscellaneous expenses%=15

(b)

To determine

To calculate: The comparative income sheet with horizontal analysis for Sweats & Treats Candy Company, Inc. for the year’s 2015 and 2016 if gross sales in 2016 are $2,125,000, sales returns and allowances is $126,400, sales discount is $73,380, merchandise inventory is Jan,1,2016 $716,090, merchandise inventory Dec.31,2016 $584,550, net purchases is $482,620, freight in is $9,220, salaries is $340,900, rent is $215,000, depreciation is $56,300, utilities is $29,690, advertising is $217,300, insurance is $39,410, administrative expense is $95,850, miscellaneous expenses is $102,500 and income tax is $44,350.

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