Presented Below Is Information For Zales Company For The Mon

Presented below is information for Zales Company for the month of J

Presented below is information for Zales Company for the month of January 2017. Cost of goods sold $280,000 Rent expense $35,000 Freight-out 7,000 Sales discounts 8,000 Insurance expense 12,000 Sales returns and allowances 13,000 Salaries and wages expense 42,000 Sales revenue 421,000 Instructions (a) Prepare a multiple-step income statement. (b) Calculate the profit margin and the gross profit rate.

Sample Paper For Above instruction

Introduction

The analysis of a company's financial statements provides crucial insights into its profitability, operational efficiency, and financial health. Zales Company, a prominent retail jewelry retailer, requires a comprehensive financial assessment of its January 2017 performance. This paper constructs a detailed multiple-step income statement based on available data and computes vital profitability ratios—profit margin and gross profit rate—to evaluate the company's financial standing.

Financial Data Context

The provided data includes sales revenue, various expenses, discounts, allowances, and cost of goods sold (COGS). The data points are as follows:

• Sales revenue: $421,000
• Cost of goods sold (COGS): $280,000
• Rent expense: $35,000
• Freight-out: $7,000
• Sales discounts: $8,000
• Sales returns and allowances: $13,000
• Insurance expense: $12,000
• Salaries and wages expense: $42,000

These figures form the foundation for the construction of the income statement and subsequent ratio analysis.

Constructing the Multiple-Step Income Statement

The multiple-step income statement is organized into various sections: gross profit, operating expenses, operating income, non-operating items, and net income.

Sales Data and Net Sales

Firstly, net sales are calculated by subtracting sales discounts and returns/allowances from gross sales:

Net Sales = Sales Revenue - Sales Discounts - Sales Returns and Allowances

Net Sales = $421,000 - $8,000 - $13,000 = $400,000

Cost of Goods Sold and Gross Profit

Next, gross profit is derived by subtracting COGS from net sales:

Gross Profit = Net Sales - COGS

Gross Profit = $400,000 - $280,000 = $120,000

Operating Expenses

Total operating expenses include selling, general, and administrative expenses:

• Rent Expense: $35,000
• Insurance Expense: $12,000
• Salaries and Wages Expense: $42,000

Freight-out, being a selling expense, is also part of operating expenses:

• Freight-out: $7,000

Total Operating Expenses:

Total Operating Expenses = $35,000 + $12,000 + $42,000 + $7,000 = $96,000

Operating Income and Net Income

Operating income is calculated as:

Operating Income = Gross Profit - Total Operating Expenses

Operating Income = $120,000 - $96,000 = $24,000

Finally, considering other expenses or income (if any), and taxes (not provided here), the net income is computed. Assuming no other income or expenses, net income equals operating income:

Net Income = $24,000

Profit Margin and Gross Profit Rate

These profitability ratios measure the efficiency and profitability of Zales Company.

Profit Margin

Defined as net income divided by net sales:

Profit Margin = Net Income / Net Sales

Profit Margin = $24,000 / $400,000 = 0.06 or 6%

Gross Profit Rate

Defined as gross profit divided by net sales:

Gross Profit Rate = Gross Profit / Net Sales

Gross Profit Rate = $120,000 / $400,000 = 0.30 or 30%

Analysis and Implications

The profit margin indicates Zales is earning 6 cents for every dollar of sales, which may be modest given industry standards. The gross profit rate of 30% suggests a healthy markup on sales, but the net profit margin reflects operational expenses impacting overall profitability. These metrics guide management in pricing strategies, expense control, and operational improvements.

Conclusion

This structured income statement and ratio analysis offer a clear snapshot of Zales Company's January 2017 performance. The company maintains a solid gross profit margin but needs to monitor expenses to improve net profitability. Such analyses are vital for strategic planning, investor confidence, and long-term sustainability.

References

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