Chapter 3, Problem 3.2P

(a)

To determine

Introduction:Income statement is a statement which presents the revenues and expenses of the company in a structured way to reflect the net income/loss earned by the company. Primarily, there are two methods of presenting the income statement, i.e., condensed and detailed.

To ascertain:The difference between the income statement presented in exhibit 3.1 and the one given in the question.

(b)

To determine

Introduction: Depreciation is a method of allocation of cost of an asset over the period of its useful life. There are various methods of depreciation primarily being straight line method and written down value method. Depreciation helps in increasing the profit margin of the company by increasing the cost which leads to decrease in tax liability.

To find: Whether B Co. spends $367,000 on new fixed assets during 2015 and the economic rationale behind it if it not so.

(c)

To determine

Introduction:Total profit margin is calculated by dividingthe net income of the company with the total revenue. A lower profit margin indicates higher risk i.e. decline in sales will erase profits and lead to net loss. The net profit margin reflectsthe efficiency in production, effective company's pricing policies and robust cost structure.

To compute: The total profit margin of B Co. and interpretation of the same.