Western Lighting Warehouse has a July 31 fiscal year end and uses a perpetual inventory system with the earnings approach. An alphabetical list of its account balances at July 31, 2021, follows. All accounts have normal balances.

Additional information:

1. All adjustments have been recorded and posted except for the inventory adjustment. According to the inventory count, the company has $40,000 of merchandise on hand.

2. Last year Western Lighting Warehouse had a gross profit margin of 40% and a profit margin of 10%.

Instructions

a. Prepare any additional required adjusting entries and update the account balances.

b. Prepare a single-step income statement.

c. Calculate gross profit margin and profit margin. Compare with last year?s margins and comment on the results. You will have to calculate gross profit separately.

d. Prepare the closing entries. Post to the Income Summary account. Check that the balance in the Income Summary account before closing it is equal to profit.

What kind of information does the gross profit margin and profit margin provide to a user of the financial statements?

Transcribed Image Text:

A. Jamal, capital A. Jamal, drawings Accounts payable Interest payable $166,500 575 39,600 Interest revenue 3,000 Merchandise inventory 41,250 7,600 Note payable Accounts receivable 38,900 46,000 Accumulated depreciation-equipment Notes receivable 33,400 75,000 Cash 30,875 Rent expense Salaries expense Sales 62,000 Cost of goods sold Depreciation expense Equipment Freight out Insurance expense Interest expense 247,500 45,000 8,350 450,000 Sales discounts 83,500 4,500 6,055 Sales returns and allowances 11,250 Unearned revenue 3,195 2,300 4,800 Utilities expense 12,600