P5-7A – Alana Inc. – Full Solution with details

P5-7A – Alana Inc.

Alana Inc. operates a retail operation that purchases and sales
home entertainment products. The company 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 liabilites
are accrued in seperate accounts. You are provided with the following
selected information for the fiscal year 2011 through 2014, inclusive.

Alana Inc.

2011
2012
2013
2014

Income
statement data

Sales revenue

$55,000
€
$47,000

Cost of goods
sold

(a)
$13,800
$14,300

Gross Profit

$38,300
$35,200
(i)

Operating
Expense

$34,900
(f)
$28,600

Net Income

(b)
$2,500
(j)

Balance Sheet
Data
2011
2012
2013
2014

Inventory
$7,200
©
$8,100
(k)

Accounts
Payable
$3,200
$3,600
$2,500
(l)

Additional
Information

Purchase of Merchandise inventory on account

$14,200
(g)
$13,200

Cash Payment
to Suppliers

(d)
(h)
$13,600

(a)
Calculate the missing amount

(b)
Sales declined over the 3 year fiscal period, 2012 – 2014. Does that mean
that profitabilty necessarially also declined? Explain, computing the gross
profit rate and the profit margin for each fiscal year to help support your
answer.