Chapter 5, Problem 5.1EYCT

(a)

To determine

Revenue is the total income earned by an organization by selling goods or rendering services.

Net income represents the revenue after the deduction of operating expenses from the gross profit. Its mathematical representation is as below:

$\text{Net income}=\text{Gross profit}-\text{Operating expenses }$

To Compute: The percentage change in total revenue, and in net income from 2013 to 2014 for Incorporation A.

(b)

To determine

Profit margin measures the amount of net income earned from each dollar of sales revenue generated by a company. Thus, it shows the relationship between the net income and net sales. It is calculated by using the following formula:

$\text{Profit Margin}=\frac{\text{Net}\text{income}}{\text{Net}\text{sales}}\times 100$

To Calculate: The profit margin for the year 2012, 2013, and 2014 of Incorporation A.

(c)

To determine

Gross profit rate is the financial ratio that evaluates the money left over out of the total revenues after deducting the cost of goods sold. Thus, it shows the relationship between the gross margin and net sales. It is calculated by using the following formula:

$\text{Gross profit rate}=\frac{\text{Gross profit}}{\text{Net sales}}\times 100$

To Calculate: The gross profit rate for the year 2012, 2013, and 2014 of Incorporation A.