Refer to Exercise 5-11. After completing Wells Decorating Centre's income statement for the year ended December 31, 2017, compute these ratios to evaluate Wells Decorating Centre's performance:

1. Gross margin percentage

2. Inventory turnover (ending inventory one year earlier, at December 31, 2016, was $54,500)

Compare your figures with the 2016 gross margin percentage of 40 percent and the inventory turnover rate of 3.82 times. Does the two-year trend suggest that Wells Decorating Centre's profits are increasing or decreasing?

In Exercise 5-11

The Trial Balance and Adjustments columns of the worksheet of Wells Decorating Centre included these accounts and balances at December 31, 2017:

Transcribed Image Text:

Trial Balance Debit Credit Debit 17,000 27,500 63,500 18,600 70,000 Adjustments Account Title Cash Accounts receivable Inventory Supplies Store fixtures Accumulated amortization Accounts payable Salary payable Note payable, long-term B. Wells, capital B. Wells, withdrawals Sales revenue Sales discounts Cost of goods sold Selling expenses Credit (a) 2,200 (b) 1,400 (c) 6,400 (d) 7,000 (e) 3,800 35,000 31,200 12,500 41,800 34,000 431,400 (a) 2,200 4,300 244,400 42,800 (b) 1,400 (c) 5,200 (e) 3,800 (c) 1,200 (d) 7,000 General expenses 28,700 Interest expense Total 1,100