Flanagin Department Store is located near the Crystal Shopping Mall. At the end of the company’s fiscal year on December 31, 2010, the following accounts appeared in its adjusted trial balance.
Accounts Payable ................ $ 73,300
Accounts Receivable .............. 50,300
Accumulated Depreciation—Building ........ 52,500
Accumulated Depreciation—Equipment ...... 42,600
Building .................... 190,000
Cash .................... 28,000
Common Stock ................. 140,000
Cost of Goods Sold .............. 418,000
Depreciation Expense—Building ............. 10,400
Depreciation Expense—Equipment ......... 13,000
Dividends ................... 15,000
Equipment .................. 100,000
Gain on Sale of Equipment ............ 4,300
Income Tax Expense ............. 15,000
Insurance Expense .............. 8,400
Interest Expense ............... 7,000
Interest Payable ................ 2,000
Merchandise Inventory ............. 53,000
Mortgage Payable ............... 80,000
Office Salaries Expense ............ 37,000
Prepaid Insurance ................ 2,400
Property Taxes Payable ............. 4,800
Property Taxes Expense ............ 6,200
Retained Earnings ............... 19,200
Sales Salaries Expense .............. 75,500
Sales ...................... 626,000
Sales Salaries 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 using 15% of net sales. 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 operating expenses by $27,800. Compute the expected new net income. 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.