Question

In 2015, Brik-o-Store, Inc. (a hardware retail company) sold 10,000 units of its product at an average price of $380 per unit. Brik-o-Store purchased 11,000 units of its product from its manufacturer in 2015 at an average cost of $300 per unit. Operating expenses (excluding depreciation) for Brik-o-Store, Inc. in 2015 were $400,000 and depreciation expense was $100,000. Brik-o-Store had $2,000,000 in debt outstanding throughout all of 2015. This debt carried an average interest rate of 10 percent. Finally, Brik-o-Store’s tax rate was 40 percent. Brik-o-Store’s fiscal year runs from January 1 through December 31. Given this information, construct Brik-o-Store’s 2015 multi-step income statement.

Income Statement Brick-o-Store
For the Period Ending 12/31/2018
Sales
- Cost of goods sold                  
Gross profit
- Operating expenses
- Depreciation                      
Operating income
- Interest expense                  
Profit before taxes
- Taxes                          
Net income

a.What is Brick store’s Gross Profit?
$800,000
$3,800,000
$6,800,000

b.What is Brick-o-Store’s Gross Profit Margin?
13%
21%
48%

c.What is Brick-o-Store’s Operating Income?
$800,000
$400,000
$300,000

d.What is Brick-o-Store’s Interest Expense?
$400,000
$300,000
$200,000

e.What is Brick-o-Store’s Tax Expense?
$80,000
$40,000
$30,000

f.What is Brick-o-Store’s Net Income?
$60,000
$30,000
$8,000

g.What is Brick-o-Store’s Net Profit Margin?
1.3%
1.6%
2.8%

Balance Sheet Brick-o-Store, Inc.
As of 12/31/2018

Cash                 230,000
Accounts receivable        380,000
Inventories            540,000
PP&E                   4,350,000  
Total Assets            5,500,000

Notes payable           340,000
Accounts payable         390,000
Current portion of L.T. Debt   90,000
Long term debt             2,100,000  
Total Liabilities            2,920,000
Common stock ($1 par)       1,000,000
Retained earnings             1,580,000  
Total Liabilities and Equity    5,500,000

h.What is Brick-o-Store’s Current Assets?
$610,000
$920,000
$1,150,000

i.What is Brick-o-Store’s Current Liabilities?
$220,000
$400,000
$820,000

Answer 1

Brik-O-Store, Inc. Income Statement For The Year Ending December 31, 2018
Sales (10,000*$380)	$3,800,000
Cost of goods sold (10,000*$300)	3,000,000
Gross profit	800,000
Operating expenses	400,000
Depreciation expense	100,000
Operating income	300,000
Interest expense ($2,000,000*10%)	200,000
Profit before tax	100,000
Taxes@40%	40,000
Net income	$60,000

`a. Gross profit = $800,000

b. Gross profit margin = Gross profit / sales*100

Gross profit margin = $800,000/3,800,000*100 = 21%

c. Operating income = $300,000

d. Interest expense = $2,000,000*10% = $200,000

e. Tax expense = $40,000

f. Net income = $60,000

g. Net profit margin = $60,000/3,800,000*100 = 1.6%

h. Current assets = Cash+inventories+accounts receivable+inventories

Current assets = $230,000+380,000+540,000 = $1,150,000

i. Current liabilities = Notes payable+accounts payable+current portion of L.T. Debt

Current liabilities = $340,000+390,000+90,000 = $820,000