Please select the option that best analyzes the PROFIT MARGIN for our example company.   The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Profit margin is not a good measure of how well a company performs, so this information does not indicate how well our company is performing financially.   The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 15-20% of its sales as income, which is a comfortable profit margin.   The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 80-85% of its income as sales, which is a very high profit margin.   The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 80-85% of its income as sales, which is an unacceptable profit margin.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Please select the option that best analyzes the PROFIT MARGIN for our example company.
 
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Profit margin is not a good measure of how well a company performs, so this information does not indicate how well our company is performing financially.
 
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 15-20% of its sales as income, which is a comfortable profit margin.
 
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 80-85% of its income as sales, which is a very high profit margin.
 
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 80-85% of its income as sales, which is an unacceptable profit margin.
Sample Products Co.
Income Statement
For the Five Months Ended May 31, 2017
Sales
$100,000
Cost of goods sold
Gross profit
75,000
25,000
Operating expenses
Selling expenses
Advertising expense
Commissions expense
Administrative expenses
2,000
5,000
7,000
Office supplies expense
Office equipment expense
Total operating expenses
3,500
2,500
6,000
13,000
Operating income
12,000
Non-Operating or other
Interest revenues
5,000
Gain on sale of investments
3,000
Interest expense
(500)
(1,500)
6,000
Loss from lawsuit
Total non-operating
Net Income
$ 18,000
Transcribed Image Text:Sample Products Co. Income Statement For the Five Months Ended May 31, 2017 Sales $100,000 Cost of goods sold Gross profit 75,000 25,000 Operating expenses Selling expenses Advertising expense Commissions expense Administrative expenses 2,000 5,000 7,000 Office supplies expense Office equipment expense Total operating expenses 3,500 2,500 6,000 13,000 Operating income 12,000 Non-Operating or other Interest revenues 5,000 Gain on sale of investments 3,000 Interest expense (500) (1,500) 6,000 Loss from lawsuit Total non-operating Net Income $ 18,000
Example Company
Balance Sheet
December 31, 2017
ASSETS
LIABILITIES
Current assets
Current liabilities
Notes payable
Accounts payable
Wages payable
Interest payable
Taxes payable
Warranty liability
Unearned revenues
Cash
$
2,100
$
5,000
Petty cash
Temporary investments
100
35,900
10,000
8,500
2,900
Accounts receivable - net
40,500
Inventory
Supplies
Prepaid insurance
Total current assets
31,000
3,800
6,100
1,100
1,500
1,500
89,000
Total current liabilities
61,000
Long-term liabilities
Notes payable
Bonds payable
Total long-term liabilities
Investments
36,000
20,000
Property, plant & equipment
400,000
420,000
Land
5,500
Land improvements
Buildings
Equipment
Less: accum depreciation
Prop, plant & equip - net
6,500
180,000
201,000
(56,000)
337,000
Total liabilities
481,000
Intangible assets
STOCKHOLDERS’ EQUITY
105,000
200,000
305,000
Goodwill
Common stock
110,000
Retained earnings
Accum other comprehensive income
Less: Treasury stock
Total stockholders' equity
Trade names
220,000
9,000
(50,000)
289,000
Total intangible assets
Other assets
3,000
Total assets
$ 770,000
Total liabilities & stockholders' equity
$ 770,000
The notes to the sample balance sheet have been omitted.
Transcribed Image Text:Example Company Balance Sheet December 31, 2017 ASSETS LIABILITIES Current assets Current liabilities Notes payable Accounts payable Wages payable Interest payable Taxes payable Warranty liability Unearned revenues Cash $ 2,100 $ 5,000 Petty cash Temporary investments 100 35,900 10,000 8,500 2,900 Accounts receivable - net 40,500 Inventory Supplies Prepaid insurance Total current assets 31,000 3,800 6,100 1,100 1,500 1,500 89,000 Total current liabilities 61,000 Long-term liabilities Notes payable Bonds payable Total long-term liabilities Investments 36,000 20,000 Property, plant & equipment 400,000 420,000 Land 5,500 Land improvements Buildings Equipment Less: accum depreciation Prop, plant & equip - net 6,500 180,000 201,000 (56,000) 337,000 Total liabilities 481,000 Intangible assets STOCKHOLDERS’ EQUITY 105,000 200,000 305,000 Goodwill Common stock 110,000 Retained earnings Accum other comprehensive income Less: Treasury stock Total stockholders' equity Trade names 220,000 9,000 (50,000) 289,000 Total intangible assets Other assets 3,000 Total assets $ 770,000 Total liabilities & stockholders' equity $ 770,000 The notes to the sample balance sheet have been omitted.
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