Chapter 5, Problem 5.3BYP

(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 ratio shall be calculated as follows:

$\text{Gross}\text{Profit}\text{Rate}=\frac{\text{Gross}\text{Profit}}{\text{Net}\text{Sales}}\times 100$

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

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

To determine: On basis of financial statements of 2013 of each company Gross profit

(2)

To determine

 On basis of financial statements of 2013 of each company gross profit rate,

(3)

To determine

Operating income

(4)

To determine

Percentage change in operating income from 2012 and 2013.

(b)

To determine

Comparison of profitability of both companies.