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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Determining gross profit

During the current year, merchandise is sold for $31,850,000. The cost of the merchandise sold is $24,206,000.

a.    What is the amount of the gross profit?

b.    Compute the gross profit percentage (gross profit divided by sales).

c.    Will the income statement necessarily report o net income? Explain.

a.

To determine

Gross profit represents the revenue after the deduction of cost of goods sold from the net sales of a business. Its mathematical representation is as below:

Gross profit=Net salesCost of goods sold

To Compute: The gross profit of Company.

Explanation

Calculate gross profit for Company.

Net sales = $31,850,000

Cost of goods sold = $24,206,000

Gross profit = Net sales Cost of goods sold

b.

To determine

Gross profit percentage is the financial ratio that shows the relationship between the gross profit and net sales. Gross profit is the difference between the total revenues and cost of goods sold. It is calculated by using the following formula:

Gross profit percentage=Gross profitNet sales×100

To Compute: The gross profit percentage of the company.

c.

To determine

To Explain: Whether the income statement necessarily report a net income.

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