Questions -

Q1. During the current year, merchandise is sold for $1,375,000. The cost of the merchandise sold is $880,000.

a. What is the amount of the gross profit?

b. Compute the gross profit percentage (gross profit divided by sales).

c. Will the income statement necessarily report a net income? Explain.

Q2. For the fiscal year, sales were $8,300,000, sales discounts were $100,000, sales returns and allowances were $45,000, and the cost of merchandise sold was $5,000,000.

a. What was the amount of net sales?

b. What was the amount of gross profit?

Q3. The following expenses were incurred by a merchandising business during the year. In which expense section of the income statement should each be reported: (a) selling, (b) administrative, or (c) other?

1. Advertising expense

2. Depreciation expense on store equipment

3. Insurance expense on office equipment

4. Interest expense on notes payable

5. Rent expense on office building

6. Salaries of office personnel

7. Salary of sales manager

8. Sales supplies used