Assume that you have been hired by Big Sky corporation as a summer intern. The c

Question

Assume that you have been hired by Big Sky corporation as a summer intern. The company is in the process of preparing its annual financial statement. To help in the process, you are asked to prepare an income statement for internal reporting purposes and an income statement for external reporting purposes. Your boss has also requested that you determine the company's gross profit percentage based on the statements that you are to prepare. The following adjusted trial balance was created from the general ledger accounts on May 31, 2010.

Account titles Debit Credit

Cash 57000 (Debits)
Accounts receivable  67000 ( Debits)
Inventory        103000 ( Debits)
Property and equipment  252000 (Debit)
Accumulated depreciation 103000 (Credits)
Liabilities 75000(Credits)
Contributed capital 120000( Credits)
Retained earnings, June 1, 2009 145900( Credits)
Sales revenue 369000 (Credits)
Sales return and allowances 9500(Debits)
Sales discounts 14000( Debits)
Cost of goods sold 248000(Debits)
Selling expense 19000(Debits)
Administrative expense 23000 (Debits)
General expenses 5000 (Debits)
Income tax expense 15400 (Debits)

Total expense $812900( DR)   $8129000(CR)

Note: Your boss wants you to create in a way that automatically recalculates net sales and any other related amounts whenever changes are made to the contra- revenue accounts. To do this, you know that you'll have to use formulas throughout the worksheets and even import or link cells from one worksheet to another.

Requirement:
Enter the trial balance information into a spreadsheet and complete the following

1) Prepare a multistep income statement that would be used for internal reporting purposes. Classify sales returns and allowances and sales discounts as contra-revenue accounts .

2) Compute the gross profit percentage.

Explanation / Answer

1. Multi-step Income Statement Income Statement Sales Revenue $369,000 Less:Sales return and allowances 9,500         sales discounts 14,000 23,500 Net sales revenue 345,500 Cost of goods sold 248,000 Gross Profit 97,500 Operating expenses Selling expenses 19,000 Administrative expense 23,000 General expenses 5,000 47,000 Income from operations 50,500 Other revenues and gains 0 50,500 Other expenses and losses 0 Income before income tax 50,500 Income tax expense 15,400 Net Income 35,100 2. Gross Profit Percentage: Gross profit Ratio = Gross Profit/ Net Sales                             = 97,500/345,500                              =0.2822                              =28.22% Income Statement Sales Revenue $369,000 Less:Sales return and allowances 9,500         sales discounts 14,000 23,500 Net sales revenue 345,500 Cost of goods sold 248,000 Gross Profit 97,500 Operating expenses Selling expenses 19,000 Administrative expense 23,000 General expenses 5,000 47,000 Income from operations 50,500 Other revenues and gains 0 50,500 Other expenses and losses 0 Income before income tax 50,500 Income tax expense 15,400 Net Income 35,100 2. Gross Profit Percentage: Gross profit Ratio = Gross Profit/ Net Sales                             = 97,500/345,500                              =0.2822                              =28.22% Income Statement Sales Revenue $369,000 Less:Sales return and allowances 9,500         sales discounts 14,000 23,500 Net sales revenue 345,500 Cost of goods sold 248,000 Gross Profit 97,500 Operating expenses Selling expenses 19,000 Administrative expense 23,000 General expenses 5,000 47,000 Income from operations 50,500 Other revenues and gains 0 50,500 Other expenses and losses 0 Income before income tax 50,500 Income tax expense 15,400 Net Income 35,100

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