Three years ago, Amy Hessler and her brother-in-law Jacob Seeling opened Family Department Store. For the first two years, business was good, but the following condensed income statement results for 2022 were disappointing.

Amy believes the problem lies in the relatively low gross profit rate (gross profit divided by net sales) of 21%. Jacob believes the problem is that operating expenses are too high.Amy thinks the gross profit rate can be improved by making both of the following changes. She does not anticipate that these changes will have any effect on operating expenses.1. Increase average selling prices by 17%. This increase is expected to lower sales volume so that total sales will increase only 6%.2. Buy merchandise in larger quantities and take all purchase discounts. These changes are expected to increase the gross profit rate by 3 percentage points.Jacob thinks expenses can be cut by making both of the following changes. He feels that these changes will not have any effect on net sales.1. Cut sales salaries of $60,000 in half and give sales personnel a commission of 2% of net sales.2. Reduce store deliveries to one day per week rather than twice a week. This change will reduce delivery expenses of $30,000 by 40%.Amy and Jacob come to you for help in deciding the best way to improve net income.

InstructionsWith the class divided into groups, answer the following.a. Prepare a condensed income statement for 2023, assuming (1) Amy?s changes are implemented and (2) Jacob?s ideas are adopted.b. What is your recommendation to Amy and Jacob?c. Prepare a condensed income statement for 2023, assuming both sets of proposed changes are made.

Preparing adjusting entries is a critical step in the accounting cycle. You are meeting with the owner of Serena?s Surf Shop, a merchandising company that uses a perpetual inventory system. Serena has stated that she does not want to waste the time to perform a physical count of inventory. She said that she knows her inventory account is up to date because her sales information system accurately records each sale.

InstructionsBased on what you have learned regarding an adjustment that a merchandising company must record, prepare a professionally written email explaining to Serena why she should perform a physical inventory count.

Transcribed Image Text:

Family Department Store Income Statement For the Year Ended December 31, 2022 Net sales Cost of goods sold Gross profit Operating expenses Selling expenses Administrative expenses Net income $700,000 553,000 147,000 $100,000 20,000 120,000 $ 27,000