Question

Assume the marketing department has presented a plan to increase advertising expenses by $340 million. It expects this plan to result in an increase in both net sales and cost of goods sold of 25%. (Hint: Increase both sales revenue and sales returns and allowances by 25%.) Assume a tax rate of 34%, and round all amounts to whole dollars.) Prepare a multiple-step income statement.

Answer 1

To prepare a multiple-step income statement, you need to calculate the increase in net sales and cost of goods sold, and then calculate the gross profit, operating expenses, and net income.

Step-by-step explanation:

To prepare a multiple-step income statement, you will need to follow these steps:

1. Calculate the increase in net sales and cost of goods sold by multiplying them each by 25%.
2. Add the increased values to the original net sales and cost of goods sold to get the new total amounts.
3. Calculate the gross profit by subtracting the new cost of goods sold from the new net sales.
4. Calculate the operating expenses by deducting the tax rate from the new gross profit.
5. Finally, subtract the operating expenses from the gross profit to get the net income.

Here is an example:

• Net sales before increase: $100 million
• Cost of goods sold before increase: $80 million
• Net sales after increase: $125 million (100 million + 25% of 100 million)
• Cost of goods sold after increase: $100 million (80 million + 25% of 80 million)
• Gross profit: $25 million (125 million - 100 million)
• Operating expenses: $8.5 million (34% of 25 million)
• Net income: $16.5 million (25 million - 8.5 million)