Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 2

Preparing a Multistep Income Statement with Sales Discounts and Sales Returns and Allowances and Computing the Gross Profit Percentage
Big Tommy Corporation is a local grocery store organized seven years ago as a corporation. The store is in an excellent location, and sales have increased each year. At the end of 2013, the bookkeeper prepared the following statement (assume that all amounts are correct, but note the incorrect terminology and format):

Required:
1. Prepare a properly formatted multistep income statement that would be used for internal reporting purposes. Treat Sales Returns and Allowances and Sales Discounts as contra-revenue accounts.
2. Prepare a properly formatted multistep income statement that would be used for external reporting purposes, beginning with the amount for Net Sales.
3. Compute and interpret the gross profit percentage (using the formula shown in this chapter).