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    Prepare three measures of profitability, a ratio of solvency, income statement etc.

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    The ledgers of Mid City Galleries Inc. contain the following balances as of December
    31, 2006.
    Advertising expense $ 123,000
    Commissions expense on art sales 1,200,000
    Depreciation expense (administrative) 98,000
    Dividend revenue 50,000
    Insurance expense 600,000
    Interest expense 98,000
    Inventory, January 1 1,650,000
    Inventory, December 31 1,424,000
    Loss on the sale of office equipment 21,300
    Miscellaneous administrative expenses 53,200
    Miscellaneous selling expenses 39,000
    Net purchases 3,200,000
    Net sales 9,275,000
    Rent expense 808,000
    Freight-in 232,000
    Freight-out 82,500
    Utilities expense 117,000
    Wages and salaries 1,264,000
    Income taxes are calculated at 30 percent of income. The galleries had 90,000 shares of common stock outstanding for the entire year. Total assets amounted to $7,509,000, and common stockholder's equity was $3,975,400.

    (a) Prepare in good form a multiple-step income statement for Mid City Galleries.
    (b) Calculate three measures of profitability and one ratio of solvency.

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    Solution Summary

    The solution prepares a multiple step income statement for Mid City Galleries.