Discussion 3

Discussion 3


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Wolford Department Store is located in midtown Metropolis. During the past several years, net income has been declining because suburban shopping centers have been attracting business away from city areas. At the end of the company’s fiscal year on November 30, 2017, these accounts appeared in its adjusted trial balance.



Accounts Payable $ 26,800
Accounts Receivable 17,200
Accumulated Depreciation—Equipment 68,000
Cash 8,000
Common Stock 35,000
Cost of Goods Sold 614,300
Freight‐Out 6,200
Equipment 157,000
Depreciation Expense 13,500
Dividends 12,000
Gain on Disposal of Plant Assets 2,000
Income Tax Expense 10,000
Insurance Expense 9,000
Interest Expense 5,000
Inventory 26,200
Notes Payable 43,500
Prepaid Insurance 6,000
Advertising Expense $ 33,500
Rent Expense 34,000
Retained Earnings 14,200
Salaries and Wages Expense 117,000
Salaries and Wages Payable 6,000
Sales Returns and Allowances 20,000
Sales Revenue 904,000
Utilities Expense 10,600


Additional data: Notes payable are due in 2021.



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

(a) Net income $ 32,900
Tot. assets $146,400

(b) Calculate the profit margin 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 15%. As a result, they estimate that gross profit will increase by $40,443 and expenses by $58,600. Compute the expected new net income. (Hint: You do not need to prepare an income statement.) Then, compute the revised profit margin and gross profit rate. Comment on the