Condensed comparative income statement: Darwin, Inc. Comparative income statement Particulars 2011 2010 Net sales 2880000 2520000 Less- cost of goods sold 1872000 1386000 Gross profit 1,008,000 1,134,000 Less- operating expenses 777,600 882,000 Income before tax 230,400 252,000 Less-income tax (57600) (63000) Net income 172,800 189,000 how was the income tax calculated?

Question The following information was developed from the financial statements of Darwin, Inc. At the beginning of 2011, the companys former supplier went bankrupt, and the company began buying merchandise from another supplier. PROBLEM 14.2A Analysis to Identify Favorable and Unfavorable Trends P A LO3 F U LO5 2011 2010 Gross profit on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,008,000 $1,134,000 Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,400 252,000 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,800 189,000 Net income as a percentage of net sales. . . . . . . . . . . . . . . . . . . . 6.0% 7.5% Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,880,000 Accumulated depreciation: equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,000 Notes payable (due in 90 days) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241,320 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,600 Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,040 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,500 Mortgage payable (due in 15 years). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,000 Salaries payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,570 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,600 Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,540 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,600 Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Unexpired insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500 Instructions a. Compute the net sales for each year. b. Compute the cost of goods sold in dollars and as a percentage of net sales for each year. c. Compute operating expenses in dollars and as a percentage of net sales for each year. (Income taxes expense is not an operating expense.) d. Prepare a condensed comparative income statement for 2010 and 2011. Include the following items: net sales, cost of goods sold, gross profit, operating expenses, income before income tax, income taxes expense, and net income. Omit earnings per share statistics. e. Identify the significant favorable and unfavorable trends in the performance of Darwin, Inc. Comment on any unusual changes.