During the current year, merchandise is sold for $31,850,000. The cost of the merchandise sold is $24,206,000.

During the current year, merchandise is sold for $31,850,000. The cost of the merchandise sold is $24,206,000.

a. What is the amount of the gross profit?

b. Compute the gross profit percentage (gross profit divided by sales).

c.  Will the income statement necessarily report a net income? Explain.

Answer:

a. $7,644,000 ($31,850,000 – $24,206,000)

b. 24% ($7,644,000 ÷ $31,850,000)

c. No. If operating expenses are less than gross profit, there will be a net income. On the other hand, if operating expenses exceed gross profit, there will be a net loss.