Chapter 5, Problem 5.2EYCT

(a)(1)

To determine

Income Statement: Income Statement is prepared by all the companies by enumerating all the expenses and revenues in the statement to calculate the resulting difference of Net Profit or Net Loss.

Gross Profit Rate: Gross Profit Rate is the ratio that determines the profitability of business as percentage of its net sales. Gross profit rate shall be calculated as follows:

$\begin{array}{l}\text{Gross Profit Ratio =}\frac{\text{Gross Profit}}{\text{Net Sales}}\times \text{100}\\ \end{array}$

Operating Income: Operating Income is the income arising after deducting the operating expenses but before the interest and tax.

$\text{Operating Income = Gross Profit }-\text{ Operating Expenses}$

(a) Gross profit, gross profit rate, operating income, percentage change in operating income of P Company and C Company and (b) comparison of profitability of both companies.

(a)(2)

To determine

Gross profit rate.

(a)(3)

To determine

Operating income.

(a)(4)

To determine

percentage change in operating income.

(b)

To determine

To Compare:The profitability of both companies.