Preparing a Multistep Income Statement with Sales Discounts and Sales Returns and Allowances and Computing the Gross Profit Percentage Big Tommy Corporation is a local grocery store organized seven years ago as a corporation. The bookkeeper prepared the following statement (assume that all amounts are correct, but note the incorrect terminology and format):

Required:
1. Prepare a properly formatted multistep income statement that would be used for internal reporting purposes. Treat Sales Returns and Allowances and Sales Discounts as contra-revenue accounts.
2. Prepare a properly formatted multistep income statement that would be used for external reporting purposes, beginning with the amount for Net Sales.
3. Compute and interpret the gross profit percentage (using the formula shown in this chapter and rounding to one decimal place).

Transcribed Image Text:

IG TOMMY CORPORATION Profit and Loss December 31 Debit Credit Sales Cost of Goods Sold Sales Returns and Allowances Sales Discounts Salaries and Wages Expense Office Expense Travel Expenses Income Tax Expense Net Profit $420,000 $279,000 10,000 6,000 58,000 16,000 1.000 15,000 35,000 $420,000 Totals $420,000