Question

The adjusted trial balance of Foster Products Company included the following balances for 12- 31-15, which was the first year of operations

Accounts Payable $ 18000 -Credit

Accumulated Depreciation 35000 -Credit

Advertising Expense 17800 -Debit

Cash 7400 -Debit

Common Stock 3000 -Credit

Cost of Goods Sold 75800 -debit

Depreciation Expense 3000 -Debit

Dividends 2000 _debit

Equipment 81800 -Debit

InsuranceExpense 2800 -Debit

Interest Revenue 500 -Credit

Inventory 24000-Debit

Prepaid Insurance 3800 -Debit

Rent Expense 26000 -Debit

Retained Earnings 40000 -Credit

Salaries Expense 63000 -Debit

Sales 226600 -Credit

Sales Discounts 1000 Debit

Sales Returns and Allowances 5000 -Debit

Supplies 3700 -Debit

Supplies Expense 6000 Debit ________

Total debit 323100 Total Credit 323100

Rent expense and salaries expense are equally divided between selling activities and general and administrative activities.

1. Prepare a Multiple Step Income Statement for 12-31-15. (Categorize the Operating Expenses into Selling Expenses and General/Administrative Expenses.

2. Calculate the Following Ratios AND provide a brief interpretation about each one. a. Return on Assets b. Gross Margin Ratio c. Profit Margin

Answer 1

Income statement
Particulars	Amount ($)	Amount ($)
Revenue:
Sales	226,600.00
Less: Sales returns and allowances	5,000.00
Net sales		221,600.00
Less: Cost of goods sold		75,800.00
Gross profit		145,800.00
Add: Interest revenues:		500.00
(A): Revenue before deducting expenditures		146,300.00
Expenditures:
Salaries expenses	63,000.00
Supplies expenses	6,000.00
Rent expense	26,000.00
Insurance	2,800.00
Sales discount	1,000.00
Depreciation expense	3,000.00
Advertisement expenditures	17,800.00
(B): Total expenditures		119,600.00
Income before tax (A-B)		26,700.00
Less: Income tax @40% assuming		10,680.00
Profit after tax		16,020.00

All ratios are in percentages (%):

Return on assets (Net income x 100/ Total assets)
Total assets
cash	7,400.00
Equipment	81,800.00
Inventory	24,000.00
Prepaid insurance	3,800.00
Total assets	117,000.00
Profit after tax	16,020.00
Return on assets (Net income x 100/ Total assets)	13.69
Gross profit margin (Gross profit x 100/ Net sales)
Gross profit	145,800.00
Net Sales	221,600.00
Gross profit margin (Gross profit x 100/ Net sales)	65.79
Profit margin (Net income x 100/ Net sales)
Net income	16,020.00
Net Sales	221,600.00
Profit margin (Net income x 100/ Net sales)	7.23