Preparing an Income Statement and Computing the Gross Profit Percentage and Receivables Turnover Ratio with Discounts, Returns, and Bad Debts

Perry Corporation is a local grocery store organized seven years ago as a corporation. At that time, a total of 10,000 shares of common stock were issued to the three organizers. The store is in an excellent location, and sales have increased each year. At the end of 2012, the bookkeeper prepared the following statement (assume that all amounts are correct; note the incorrect terminology and format):

Required:
1. Beginning with the amount of net sales, prepare an income statement (showing both gross profit and income from operations). Treat sales discounts as a contra-revenue.
2. The beginning and ending balances in accounts receivable were $16,000 and $18,000, respectively. Compute the gross profit percentage and receivables turnover ratio and explain theirmeaning.

PERRY CORPORATION Profit and Loss December 31, 2012 Debit Credit $184,000 Sales Cost of goods sold $ 98,000 Sales returns and allowances 9,000 Selling expense Administrative and general expense Bad debt expense Sales discounts 17,000 18,000 2,000 8,000 Income tax expense 10,900 Net profit 21,100 $184,000 $184,000 Totals