Chapter 5, Problem 5.6E

(a)

To determine

Multi step income statement: A multiple step income statement refers to the income statement that shows the operating, and non-operating activities of the business, under separate head. In different steps of the multi-step income statement, principal operating activities are reported that starts from the record of sales revenue with all contra sales revenue account like sales returns, allowances and sales discounts.

Comprehensive Income Statement: Comprehensive income statement refers to the multi-step income statement that records the gains and losses from operating activities and the non-operating activities of the business.

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 profit and net sales. It is calculated by using the following formula:

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

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 Prepare: The income statement of Company Z for the month ended January 31, 2014.

(b)

To determine

The gross profit rate and profit margin of Company Z for 2014.