E5-11

a) Compute Payton's gross profit.

GROSS PROFIT = 900,00 - 540,000 = $ 360,000
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b) Compute the gross profit rate. Why is this rate computed by financial statement users?

(360,000/900,000)/100 = 4/10of 100 = 40%
This is known as the GROSS PROFIT MARGIN.
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c) What is Payton's income from operations and net income?

1)Income from Operations = 360,000 - 230,000 = $130,000.
2)Net Income = 130,000 - 11,000 = $119,000

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d) If Payton prepared a single-step income statement, what amount would it report for net income? NET INCOME = $119,000.

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e) In what section of its classified balance sheet should Payton report merchandise inventory?
Inventory is reported as part of the
CURRENT ASSETS.
Comment on ROLCAM's Answer: 1000 characters remaining Submit Comment
E6-2
Unadjusted Ending inventory $732,570

1. Included in the company's count were goods with a cost of $257,200 that the company is holding on consignment. The goods belong to Superior Corporation.
($257,200)

2. The physical count did not include goods purchased by Strawser with a cost of $45,030 that were shipped FOB destination on December 28 and did not arrive at Strawser's warehouse until January 3.
+ $45,030

3. Included in the inventory account was $17,880 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year.
($17,880)

4. The company received an order on December 29 that was boxed and was sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $40,950 and a cost of