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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 a vertical analysis of the income statement for Royal Equipment Supply, Inc., on page 499.

To determine

To calculate: The vertical analysis of an income statement for Royal Equipment Supply, Inc. for the year December 31,2016 if gross sales are $458,400, sales returns and allowances are $13,200, sales discount is $1,244, merchandise inventory for Jan,1,2016 is $198,700, merchandise inventory for Dec.31,2016 is $76,400, net purchases are $86,760, freight in is $875, salaries are $124,200, rent is $21,000, utilities are $1,780, advertising is $5,400, insurance is $2,340, administrative expense is $14,500, miscellaneous expenses are $6,000 and income tax is $17,335.

Explanation

Given Information:

Royal Equipment Supply, Inc.’s gross sales are $458,400, sales returns and allowances are $13,200, sales discount is $1,244, merchandise inventory for Jan,1,2016 is $198,700, merchandise inventory for Dec.31,2016 is $76,400, net purchases are $86,760, freight in is $875, salaries are $124,200, rent is $21,000, utilities are $1,780, advertising is $5,400, insurance is $2,340, administrative expense is $14,500, miscellaneous expenses are $6,000 and income tax is $17,335.

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 gross sales are $458,400, sales returns and allowances are $13,200, sales discount is $1,244, merchandise inventory for Jan,1,2016 is $198,700, merchandise inventory for Dec.31,2016 is $76,400, net purchases are $86,760, freight in is $875, salaries are $124,200, rent is $21,000, utilities are $1,780, advertising is $5,400, insurance is $2,340, administrative expense is $14,500, miscellaneous expenses are $6,000 and income tax is $17,335.

Compute the net sales by substituting sales returns and allowances and sales discount and gross sales in the formula:

Net sales=Gross salesSales returns and allowancessales discounts=458,40013,2001,244=$443,956

Compute percentage of gross sales by substituting gross sales and net sales in the formula:

%of Gross sales=Gross salesNet sales=$458,400$443,956=1.0330=103.30%

Similarly, calculate each income statement item and enter the results on the income statement by using the steps of vertical analysis;

And, percentage of net sales;

% of Net sales=Gross salesSales returns and allowances%sales discounts%=103.33.00.3=100%

Compute cost of goods sold by substituting merchandise inventory, net purchases, freight in to $875 and merchandise inventory for Dec.31,2016 in the formula:

Costs of goods sold=198,700+86,760+87576,400=286,33576,400=$209,935

And, percentage of good sold is;

% of Costs of goods sold=44.8+19.5+0.217.2=64.517.2=47.3%

Compute gross margin by substituting net sales and cost of goods sold:

Gross Margin=Net SalesCost of goods sold=443,956209,935=$234,021

And, percentage of gross margin is;

% of Gross Margin=Net Sales%Cost of goods sold%=10047.3=52

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Sect-15.I P-8RESect-15.I P-9RESect-15.I P-10RESect-15.I P-11RESect-15.I P-12RESect-15.I P-13RESect-15.I P-14RESect-15.I P-15RESect-15.I P-16RESect-15.I P-17RESect-15.I P-18RESect-15.I P-19RESect-15.I P-20RESect-15.I P-21RESect-15.I P-22RESect-15.I P-23RESect-15.I P-24RESect-15.I P-25RESect-15.I P-26RESect-15.I P-27RESect-15.I P-28RESect-15.I P-29RESect-15.I P-30RESect-15.I P-31RESect-15.I P-32RESect-15.I P-33RESect-15.I P-34RESect-15.I P-35RESect-15.II P-4TIESect-15.II P-5TIESect-15.II P-6TIESect-15.II P-1RESect-15.II P-2RESect-15.II P-3RESect-15.II P-4RESect-15.II P-5RESect-15.II P-6RESect-15.II P-7RESect-15.II P-8RESect-15.II P-9RESect-15.II P-10RESect-15.II P-11RESect-15.II P-12RESect-15.II P-13RESect-15.II P-14RESect-15.II P-15RESect-15.III P-7TIESect-15.III P-8TIESect-15.III P-1RESect-15.III P-2RESect-15.III P-3RESect-15.III P-4RESect-15.III P-5RESect-15.III P-6RESect-15.III P-7RESect-15.III P-8RESect-15.III P-9RESect-15.III P-10RESect-15.III P-11RESect-15.III P-12RESect-15.III P-13RESect-15.III P-14RESect-15.III P-15RESect-15.III P-16RESect-15.III P-17RESect-15.III P-18RESect-15.III P-19RESect-15.III P-20RESect-15.III P-21RESect-15.III P-22RESect-15.III P-23RESect-15.III P-24RESect-15.III P-25RESect-15.III P-26RESect-15.III P-27RESect-15.III P-28RESect-15.III P-29RESect-15.III P-30RESect-15.III P-31RESect-15.III P-32RESect-15.III P-33RECh-15 P-1CRCh-15 P-2CRCh-15 P-3CRCh-15 P-4CRCh-15 P-5CRCh-15 P-6CRCh-15 P-7CRCh-15 P-8CRCh-15 P-9CRCh-15 P-10CRCh-15 P-11CRCh-15 P-12CRCh-15 P-13CRCh-15 P-14CRCh-15 P-1ATCh-15 P-2ATCh-15 P-3ATCh-15 P-4ATCh-15 P-5ATCh-15 P-6ATCh-15 P-7ATCh-15 P-8ATCh-15 P-9ATCh-15 P-10ATCh-15 P-11ATCh-15 P-12ATCh-15 P-13ATCh-15 P-14ATCh-15 P-15ATCh-15 P-16ATCh-15 P-17ATCh-15 P-18ATCh-15 P-19ATCh-15 P-20ATCh-15 P-21ATCh-15 P-22ATCh-15 P-23ATCh-15 P-24AT

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