Kristen Montana operates a retail clothing operation. She purchases all merchandise inventory on credit and uses a periodic inventory system. The accounts payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for the fiscal years 2005, 2006, 2007, and 2008.
2005 2006 2007 2008
Inventory (ending) $13,000 $11,300 $14,700 $12,200
Accounts payable (ending) 20,000
Sales 225,700 227,600 219,500
Purchase of merchandise
inventory on account 146,000 145,000 129,000
Cash payments to suppliers 135,000 161,000 127,000
Instructions:
a. Calculate cost of goods sold for each of the 2009, 2010, and 2011 fiscal years.
b. Calculate the gross profit for each of the 2009, 2010, and 2011 fiscal years.
c. Calculate the ending balance of accounts payable for each of the 2009, 2010, and 2011 fiscal years.
d. Calculate the gross profit rate for each fiscal year.
e. Sales declined in fiscal 2011. Does that mean that profitability, as measured by the gross profit rate, necessarily also declined? Explain, calculating the gross profit rate for each fiscal year to help support year answer.
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