Demonstration Problem

Debit Cash Accounts Receivable Merchandise Inventory Prepaid Insurance Store Equipment Larry Falcetto, Drawing Sales Returns and Allowances Sales Discounts Cost of Goods Sold Freight-out Advertising Expense Store Salaries Expense Utilities Expense Rent Expense Depreciation Expense Insurance Expense Interest Expense Credit Accumulated Depreciation Notes Payable Accounts Payable Larry Falcetto, Capital Sales Interest Revenue

The adjusted trial balance columns of the work sheet for the year ended December 31, 2005, for Falcetto Company are as follo

14,500 11,100 29,000 2,500 95,000 12,000 6,700 5,000 363,400 7,600 12,000 56,000 18,000 24,000 9,000 4,500 3,600 673,900

Instructions
Prepare an income statement assuming Falcetto Company does not use sub grouping for operating expenses.

SOLUTION TO DEMONSTRATION PROBLEM

Falcetto Company
Income Statement For the Month Ended December 31, 2005 Sales Revenue Sales Less: Sales returns and allowances Sales discounts Net Sales Cost of goods sold Gross profit Operating expenses Store salaries expense Rent expense Utilities expense Advertsing expense Depreciation expense Freight-out Insurance expense Total operating expenses

6,700 5,000

56,000 24,000 18,000 12,000 9,000 7,600 4,500

Income from operations Other revenues and gains Interest revenue Other expenses and losses Interest expense Net income

2,500 3,600

Questions :
1. What is the gross profit percentage or rate for this business ? 2. What is the gross margin percentage or rate for this business ?

5, for Falcetto Company are as follows.

ed Depreciation

18,000 25,000 10,600 81,000 536,800 2,500 673,900

perating expenses.

536,800 11,700 525,100 363,400 161,700

131,100

30,600

1,100 29,500