Chapter 5, Problem 5.8E

(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.

To Prepare: The multi-step income statement of Company D for the year ended December 31, 2017.

(b)

To determine

Gross Profit Rate: It is the financial ratio that evaluates the money left out of the total revenues after deducting the cost of goods sold. Thus, it shows the relationship between the gross profit on sales and net sales. It is calculated by using the following formula:

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

Profit Margin: It 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 Determine: The profit margin and gross profit rate of Company D for the year 2017.

(c)

To determine

To Explain: Whether the decline in profit margin in 2017 is a cause for concern.