Chapter 5, Problem 5.3BYP

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:

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

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 A Company and W Company and (b) comparison of profitability of both companies.