Tsang Inc purchases its merchandise inventory on credit

and uses #8585

Tsang Inc. purchases its merchandise inventory on credit and uses a perpetual inventory
system. The company began operations on January 1, 2015, and during 2015 purchased
merchandise costing $200,000. Of this amount, 75% was paid in 2015 with the balance paid in
2016. The company sold 80% of its inventory for $400,000 on credit. Of this amount, 80% was
collected in 2015 with the rest collected in 2016. Operating expenses of $140,000 were incurred
in 2015 and all were paid by the end of the year. The income tax rate is 30% and all income
taxes relating to 2015 were paid in 2016. The following table indicates key amounts on the 2015
financial statements: ___________________________2015Income statement
dataSales.....................................[1]Cost of goods sold.....................[2]Gross
profit.............................[3]Operating expenses ...................[4]Profit before income tax..............
[5]Income tax expense ....................[6]Profit ....................................[7]Statement of financial
position dataAccounts receivable ...................[8]Merchandise inventory ................[9]Accounts
payable ....................[10]Income tax payable ..................[11]Instructions(a) Calculate the
balances for Sales and Accounts Receivable (items 1 and 8 above).(b) Calculate the balances
for Cost of Goods Sold, Merchandise Inventory, and Accounts Payable (items 2, 9, and 10
above).(c) Calculate the gross profit, the balance in Operating Expenses, and the profit before
income tax (items 3, 4, and 5 above).(d) Calculate the balances for Income Tax Expense, profit,
and Income Tax Payable (items 6, 7, and 11 above).(e) Calculate the gross profit margin and
profit margin for the company. All companies in this industry sell their products at approximately
the same price and incur income tax at the same rate. If the company's gross profit margin and
profit margin are lower than the industry average, what are the most likely explanations for
this?View Solution:
Tsang Inc purchases its merchandise inventory on credit and uses

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