Zhou Co's income statement for January 2014 showed: Sales revenue of $370,000 with $28,000 in returns and discounts, leaving net sales of $342,000. Cost of goods sold was $212,000 with gross profit of $130,000. Operating expenses including freight, salaries, rent and insurance totaled $111,000, leaving income before tax of $19,000. After taxes of 25% the net earnings were $14,250, with a profit margin of 4.17% and gross profit rate of 38.01%.

1. E5-6 Presented below is information for Zhou Co. for the month of January 2014. Cost of goods
sold $212,000 Rent expense $ 32,000 Freight-out 7,000 Sales discounts 8,000 Insurance expense
2,000 Sales returns and allowances 20,000 Salaries and wages expense 60,000 Sales revenue
370,000 Instructions (a) Prepare an income statement using the format presented on page 245.
Assume a 25% tax rate. (b) Calculate the prof it margin and the gross profit rate.
Solution
Solution :
Zhou & Co.
Income Statement
For the Month of January, 2014
Revenues : Amount ($) % Ratios
Sales 3,70,000
Sales returns & Allowances -20,000
Sales Discounts -8,000 -28,000
Net Sales 3,42,000
Cost of goods sold 2,12,000
Gross profit 1,30,000 38.01%
Operating & Admin expenses
Freight Outwards 7,000
Salaries & Wages 60,000
Rent Expenses 32,000
Insurance Expense 12,000 1,11,000
Income before Tax 19,000 5.14%
Taxation 4,750 25.00%
Net earnings 14,250 4.17%