Reference no: EM13531663

Parkland Department Store is located near the Lyndale Shopping Mall. At the end of the company"s fiscal year on December 31, 2012, the following accounts appeared in its adjusted trial balance.

Accounts Payable	$ 73,300
Accounts Receivable	45,500
Accumulated Depreciation-Buildings	52,500
Accumulated Depreciation-Equipment	42,600
Buildings	190,000
Cash	28,000
Common Stock	140,000
Cost of Goods Sold	412,000
Depreciation Expense	23,400
Dividends	15,000
Equipment	100,000
Gain on Disposal of Plant Assets	4,300
Income Tax Expense	15,000
Insurance Expense	8,400
Interest Expense	7,000
Interest Payable	2,000
Inventory	43,000
Mortgage Payable	62,500
Prepaid Insurance	2,400
Maintenance and Repairs Expense	$ 6,200
Retained Earnings	19,200
Salaries and Wages Expense	111,000
Sales Revenue	626,000
Salaries and Wages Payable	3,500
Sales Returns and Allowances	8,000
Utilities Expense	11,000

Additional data: $20,000 of the mortgage payable is due for payment next year.

Instructions

(a) Prepare a multiple-step income statement, a retained earnings statement, and a classified balance sheet.

(b) Calculate the profit margin ratio and the gross profit rate.

(c) The vice president of marketing and the director of human resources have developed a proposal whereby the company would compensate the sales force on a strictly commission basis. Given the increased incentive, they expect net sales to increase by 25%. As a result, they estimate that gross profit will increase by $50,500 and expenses by $27,800. Compute the expected new net income. (Hint: You do not need to prepare an income statement.) Then, compute the revised profit margin ratio and gross profit rate. Comment on the effect that this plan would have on net income and the ratios, and evaluate the merit of this proposal.