Question

Income Statement

The goal of a business is to make a profit. Financial statements such as income statements and balance sheets report how successful a business has been in achieving this goal.

1.    Use spreadsheet software to create an income statement for Sweet Treats using the data shown below step 8. Format the income statement similar to the one shown in Figure 1-2.2. Use appropriate number formats and rules under numbers as shown in Figure 1-2.2.

2.    Enter the appropriate headings and date the income statement for the year ended December 31 of the current year.

3.    Enter a formula to subtract the cost of goods sold from sales to find the gross profit on sales.

4.    Enter a formula to subtract the total operating expenses from the gross profit on sales to find the net income from operations.

5.    Enter a formula to subtract other expenses or add other income to find net income before income tax.

6.    Enter a formula to subtract income tax to find net income after income tax.

7.    Enter formulas to calculate the percentage of sales for gross profit on sales, net income from operations, net income before tax, and net income after tax. (Divide each number by sales.)

8.    One goal of Sweet Treats is to have net income that is 25 percent of sales or higher. Assuming the company sells the same amount of merchandise and expenses and taxes remain the same, how much would the company have to increase prices to meet this goal?

Data for an income statement for the year ended December 31 of the current year:

Sales                                                        $325,000

Cost of Goods Sold                                  175,000

Operating Expenses

                Advertising Expense                    1,000

                Delivery Expense                          2,000

                Office Supplies Expense 500

                Payroll Taxes Expense                 5,000

                Salaries Expense                         58,000

                Utilities Expense                            3,000

                Miscellaneous Expense                  400

Other Expense

                Interest                                             2,500

Income Tax                                                    11,500

Answer 1

Sweet Treats
Income Statement for the Year ended December 31
Particulars	Amount
Sales	$      325,000
Cost of Goods Sold	$      175,000
Gross Profit	$      150,000
Operating Expenses
Advertising Expense	$           1,000
Delivery Expense	$           2,000
Office Supplies Expense	$              500
Payroll Taxes Expense	$           5,000
Salaries Expense	$        58,000
Utilities Expense	$           3,000
Miscellaneous Expense	$              400
Total Operating Expenses	$        69,900
Net Income from Operations	$        80,100
Other Expense
Interest	$           2,500
Net Income Before Tax	$        77,600
Income Tax	$        11,500
Net Income After Tax	$        66,100
GP Margin	46.15%
Operating income margin	24.65%
Net income before tax	23.88%
Net income after tax	20.34%

Here is the answer to Part 8

Current Income is $ 66,100
Target Income is 25% of sales = 25% of 325,000 = $ 81,250

Increase required = 81,250 - 66,100 = 15,150

Percent increase required = 15,150 / 325,000 = 4.66%