Question - The ledgers of Mid City Galleries Inc. contain the following balances as of December

31, 2006.

Advertising expense $ 123,000

Commissions expense on art sales 1,200,000

Depreciation expense (administrative) 98,000

Dividend revenue 50,000

Insurance expense 600,000

Interest expense 98,000

Inventory, January 1 1,650,000

Inventory, December 31 1,424,000

Loss on the sale of office equipment 21,300

Miscellaneous administrative expenses 53,200

Miscellaneous selling expenses 39,000

Net purchases 3,200,000

Net sales 9,275,000

Rent expense 808,000

Freight-in 232,000

Freight-out 82,500

Utilities expense 117,000

Wages and salaries 1,264,000

Income taxes are calculated at 30 percent of income. The galleries had 90,000 shares of common stock outstanding for the entire year. Total assets amounted to $7,509,000, and common stockholder's equity was $3,975,400.

Instructions

(a) Prepare in good form a multiple-step income statement for Mid City Galleries.

(b) Calculate three measures of profitability and one ratio of solvency.