The following data were provided by Mystery Incorporated for the year ended December 31:

Required:

1. Based on these data, prepare a multistep income statement for external reporting purposes (showing appropriate subtotals and totals).

2. What was the amount of gross profit? What was the gross profit percentage (calculated using the formula shown in this chapter and rounded to one decimal place)? Explain what these two amounts mean.

3. Did the gross profit percentage in the current year improve, or decline, relative to the 38.0% gross profit percentage in the prior year?

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$165,000 Cost of Goods Sold Income Tax Expense 17,600 Merchandise Sales (gross revenue) for Cash 240,000 Merchandise Sales (gross revenue) on Credit 42,000 Office Expenses 19,000 Sales Returns and Allowances 7,000 Salaries and Wages Expense 40,200