Question

Suppose in its income statement for the year ended June 30, 2022, The Clorox Company reported the following condensed data (dollars in millions).

Salaries and wages expenses		$ 460		Research and development expense		$ 114
Depreciation expense		90		Income tax expense		770
Sales revenue		7,830		Loss on disposal of plant assets		46
Interest expense		161		Cost of goods sold		3,800
Advertising expense		499		Rent expense		105
Sales returns and allowances		230		Utilities expense		60

Assume a tax rate of 34%.

Prepare a multiple-step income statement. (Round answers to 0 decimal places, e.g. 15,222.)

Calculate the gross profit rate and the profit margin. (Round answers to 1 decimal place, e.g. 15.2%.)

Assume the marketing department has presented a plan to increase advertising expenses by $340 million. It expects this plan to result in an increase in both net sales and cost of goods sold of 25%. (Hint: Increase both sales revenue and sales returns and allowances by 25%.) Redo parts (a) and (b) and discuss whether this plan has merit. (Assume a tax rate of 34%, and round all amounts to whole dollars.)

Prepare a multiple-step income statement. (Round answers to 0 decimal places, e.g. 15,222.)

Calculate the gross profit rate and the profit margin. (Round answers to 1 decimal place, e.g. 15.2%.)

Gross profit rate		enter percentages rounded to 1 decimal place	%
Profit margin		enter percentages rounded to 1 decimal place	%

Answer 1

1) Multi-step Income Statement :-

Particulars	Amount($ million)	Amount($ million)
Sales Revenue	7830
Less :- Sales Return and Allowance	(230)
Net Sales Revenue	7600	7600
Less : Cost of Goods sold		(3800)
Gross Profit		3800
Operating Expenses :-
Salaries and Wages Exp	460
Depreciation Exp	90
Interest Exp	161
Advertising Exp	499
Rent Exp	105
Utilities Exp	60
Total Operating Expenses	1375	(1375)
Operating Income		2425
Non Operating Expenses :-
Research and Development Exp	114
Loss on Disposal of Plant assets	46
Total Non Operating Expenses	160	(160)
Net Income Before Tax		2265
Less : Income Tax Expenses($2265*34%)		(770)
Net Income After Tax		1495

Gross Profit Rate = (Gross Profit / Net Sales)*100 = ($3800 million / $7600 million)*100 = 50%

Profit Margin = (Net Income After Tax / Net Sale)*100 = ($1495 million / $7600 million)*100 = 19.7%

2) Multi-step Income Statement :-

Particulars	Amount($ million)	Amount($ million)
Sales Revenue	9787.5
Less :- Sales Return and Allowance	(287.5)
Net Sales Revenue	9500	9500
Less : Cost of Goods sold		(4750)
Gross Profit		4750
Operating Expenses :-
Salaries and Wages Exp	460
Depreciation Exp	90
Interest Exp	161
Advertising Exp ($499+$340)	839
Rent Exp	105
Utilities Exp	60
Total Operating Expenses	1715	(1715)
Operating Income		3035
Non Operating Expenses :-
Research and Development Exp	114
Loss on Disposal of Plant assets	46
Total Non Operating Expenses	160	(160)
Net Income Before Tax		2875
Less : Income Tax Expenses($2875*34%)	(Round off)	(978)
Net Income After Tax		1897

Gross Profit Rate = (Gross Profit / Net Sales)*100 = ($4750 million / $9500 million)*100 = 50%

Profit Margin = (Net Income After Tax / Net Sale)*100 = ($1897 million / $9500 million)*100 = 19.97% or 20% round off