5.14: Solutions

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Discussion Questions

A business providing a service holds no inventory for resale. Thus, a business that sells goods must match the cost of the goods sold with the revenue the sales generate. The Income Statement will show this, as well as the Gross Profit (also known as Gross Margin)—the difference between Sales and Cost of Goods Sold. A service business Income Statement would not show these items.

Gross Profit is the result of deducting Cost of Goods Sold from Sales (or Net Sales). For example, if a car is sold for $16,000 but cost $12,000, the Gross Profit calculation would be

Sales	$16,000
Cost of Goods Sold	12,000
Gross Profit	4,000

The profit on the sale, before considering operating and other expenses, is $4,000. The Gross Profit percentage is $4,000/16,000 or 25 per cent. That means for every $1 of Sales, the business earns $0.25 on average to cover operating and other expenses.

The Merchandise Inventory account collects information regarding the purchase of inventory, return to supplier of inventory, purchase discounts, transportation costs, and inventory shrinkage adjustments.
The sales and collection cycle starts off when a sale is made, often creating an Account Receivable. The Account Receivable is subsequently removed when cash is collected. If merchandise is returned because it is say, the wrong model or defective, a Sales Returns and Allowances records this amount and the Account Receivable is reduced. To speed up collections, discounts may be offered in return for prompt payments. If so, a Sales Discount may be given.
Assuming a perpetual inventory system, the purchase and payment cycle starts with the purchase of merchandise, which becomes the inventory held for resale; the purchase generally creates an Account Payable. The Account Payable is removed once the account is paid by a cash disbursement. Purchases may be returned if the inventory item is wrong or defective. If so, the Account Payable would be reduced and a credit to Merchandise Inventory would be recorded. Discounts may be offered by the supplier to speed up payment by the purchaser. If so, the purchaser would be given a purchase discount which is debited to Account Payable and credited to Merchandise Inventory.
The contra accounts used for sales are
1. Sales Returns and Allowances, which accumulates merchandise returned to the seller by the customer because of some defect or error.
2. Sales Discounts, which accumulates discounts taken by customers when payments are made to the seller within the discount period.
In a perpetual inventory system, there are no contra accounts used for purchases.
(Appendix) In a perpetual inventory system, the balances in Merchandise Inventory and Cost of Goods Sold are updated with each transaction involving purchases and sales. In a periodic inventory system, the balances in Merchandise Inventory and Cost of Goods Sold are not known until an inventory count is performed. The advantage of a perpetual system is that account balances are maintained in real time and therefore always known which is not the case for a periodic system where account balances have to be estimated until an inventory count is performed.

Exercises

EXERCISE 5–1

The completed table is as follows:

	2014	2013	2012	2011
Sales	$10,000	$9,000	$8,000	$7,000
Cost of Goods Sold	7,500	6,840	6,160	5,460
Gross Profit	2,500	2,160	1,840	1,540
Gross Profit Percentage	25%	24%	23%	22%

The company's gross profit percentage has increased each year from 2011 to 2014 inclusive. This means it is earning more per sales dollar each year (from 22 cents per dollar in 2011 to 25 cents per dollar in 2014). This is a favourable trend because the company is generating more gross profit to apply against operating and other expenses which hopefully results in greater net income.

EXERCISE 5–2

General Journal
Date	Account/Explanation	F	Debit	Credit
Jul. 6	Merchandise Inventory		600
	Accounts Payable			600
	To record purchase of inventory on account.
9	Accounts Payable		200
	Merchandise Inventory			200
	To record returns made on goods purchased.
15	Accounts Payable		400
	Cash			396
	Merchandise Inventory			4
	To record payment made within discount period.

EXERCISE 5–3

The Horne Inc. general journal is as follows:

General Journal
Date	Account/Explanation	F	Debit	Credit
May 5	Accounts Receivable		4,000
	Sales			4,000
	Cost of Goods Sold		2,500
	Merchandise Inventory			2,500
7	Sales Returns and Allowances		500
	Accounts Receivable			500
	Merchandise Inventory		300
	Cost of Goods Sold			300
15	Cash		3,430
	Sales Discounts		70
	Accounts Receivable			3,500
31	Cost of Goods Sold		100
	Merchandise Inventory			100
	(3,000 beginning MI − 2,500 + 300 = 800 unadjusted MI balance; 800 − 700 = 100 shrinkage)

The Sperling Renovations Ltd. general journal is as follows:

General Journal
Date	Account/Explanation	F	Debit	Credit
May 5	Merchandise Inventory		4,000
	Accounts Payable			4,000
7	Accounts Payable		500
	Merchandise Inventory			500
15	Accounts Payable		3,500
	Merchandise Inventory			70
	Cash			3,430
	The shrinkage adjustment recorded by Horne Inc. does not impact Sperling in any way therefore no adjusting entry is required in Sperling's records.

EXERCISE 5–4

General Journal
Date	Account/Explanation	F	Debit	Credit
Mar 1	Merchandise inventory		25,000
	Accounts payable			25,000
	(Purchase, terms 2/10, net 30)

Mar 3	Accounts receivable		5,000
	Cost of goods sold		2,600
	Sales			5,000
	Merchandise inventory			2,600
	(Sale, terms 1/10, n30)

General Journal
Date	Account/Explanation	F	Debit	Credit
Mar 4	Merchandise inventory		100
	Sales returns and allowances		200
	Accounts receivable			200
	Cost of goods sold			100
	(Sales return, Mar 3)

Mar 5	Merchandise inventory		15,000
	Cash			15,000
	(Cash purchase)

Mar 6	Merchandise inventory		200
	Cash			200
	(Freight)

Mar 7	Cash		500
	Merchandise inventory			500
	(Allowance for damaged inventory)

Mar 8	Accounts receivable		25,000
	Cost of goods sold		13,000
	Sales			25,000
	Merchandise inventory			13,000
	(Sale, terms 1.5/10, n30)

Mar 9	Delivery expense or freight-out		500
	Cash			500
	(Shipping costs for Mar 8 sale)

Mar 11	Accounts payable		12,500
	Merchandise inventory			250
	Cash			12,250
	(50% payment of Mar 1 purchase)

Mar 13	Cash		4,950
	Sales discount		50
	Accounts receivable			5,000
	(Collect Mar 3 sale)

Mar 15	Office supplies inventory		540
	Account payable			540
	(Purchase 1/10, n30)

Mar 18	No Entry

Mar 20	Cash		6,010
	Accounts receivable			6,010
	(Collect account)

Mar 25	Account payable		540
	Office supplies inventory			5.40
	Cash			534.60
	(Payment of Mar 15 purchase)

General Journal
Date	Account/Explanation	F	Debit	Credit
Mar 27	Cash		12,500
	Cost of goods sold		5,000
	Sales			12,500
	Merchandise inventory			5,000
	(Cash sale)

Mar 31	Account payable		12,500
	Cash			12,500
	(Payment of Mar 1 balance, discount expired)

EXERCISE 5–5

General Journal
Date	Account/Explanation	F	Debit	Credit
Apr 1	Merchandise inventory		15,000
	Cash			15,000
	(Cash purchase)

Apr 3	Cash		8,000
	Cost of goods sold		4,600
	Sales			8,000
	Merchandise inventory			4,600
	(Cash sale)

Apr 5	Merchandise inventory		10,000
	Accounts payable			10,000
	(Purchase, terms 1/10, n30)

Apr 7	Accounts payable		2,000
	Merchandise inventory			2,000
	(Purchase returns)

Apr 8	Accounts receivable		8,000
	Cost of goods sold		4,000
	Merchandise inventory			4,000
	Sales			8,000
	(Sale, terms 2/10, n30)

Apr 9	Delivery expense or freight-out		500
	Cash			500
	(Shipping costs for Apr 8 sale)

Apr 10	Merchandise inventory		1,000
	Sales returns and allowances		400
	Cost of goods sold			400
	Cash			1,000
	(Sale return)

General Journal
Date	Account/Explanation	F	Debit	Credit
Apr 10	Sales allowance		200
	Accounts receivable			200
	(Apr 8 sale, sales allowance)

Apr 12	Merchandise inventory		22,000
	Accounts payable			22,000
	(Purchase, terms 1/10, n30)

Apr 15	Accounts payable		8,000
	Merchandise inventory
	Cash ($10,000−2,000)×0.99			7,920
	(Paid Apr 5 purchase)

Apr 16	Merchandise inventory		600
	Cash			600
	(Freight on Apr 12 purchase)

Apr 18	Cash		5,000
	Sales discount		102
	Accounts receivable ($5,000÷0.98) Accounts receivable ($5,000÷0.98)			5,102
	(Partial payment on account)

Apr 27	Accounts payable		22,000
	Cash			22,000
	(Paid account, discount forfeited)

Apr 27	Cash		20,000
	Cost of goods sold		10,000
	Merchandise inventory			10,000
	Sales			20,000
	(Cash sale)

EXERCISE 5–6

The income statement is as follows:

Smith Corp. Income Statement Year Ended June 30, 2015
Sales			$72,000
Less: Sales returns and allowances			2,000
Net sales			$70,000
Cost of goods sold			50,000
Gross profit			$20,000
Operating expenses:
Selling expenses:
Advertising expense	$1,500
Commissions expense	4,000
Delivery expense	500
Rent expense - store	1,500
Sales salaries expense	2,000
Total selling expenses		$9,500
General and administrative expenses:
Depreciation expense - equipment	500
Insurance expense	1,000
Office salaries expense	3,000
Rent expense - office	1,000
Total general and administrative expenses		5,500
Total operating expenses			15,000
Income before income tax expense			5,000
Income tax expense			1,000
Net income			$4,000

The gross profit percentage, rounded to two decimal places, is 28.57% calculated as 100 × (20,000/70,000).

EXERCISE 5–7

Inventory, opening balance	$ 10,000	$ 53,000	$ 561,800	$ 168,540	50,562
Plus: purchases	30,000	159,000	1,685,400	1,011,240	606,744
Total goods available for sale	40,000	212,000	2,247,200	1,179,780	657,306
Less: ending inventory	15,000	79,500	842,700	556,180	100,000
Cost of goods sold	25,000	132,500	1,404,500	623,600	557,306

Sales	55,000	240,000	1,600,000	900,000	700,000
Less: cost of goods sold	25,000	132,500	1,404,500	623,600	557,306
Gross profit	30,000	107,500	195,500	276,400	142,694
Less: operating expenses	12,000	63,600	275,000	250,000	145,000
Net income/(loss)	18,000	43,900	(79,500)	26,400	(2,306)
Gross profit/sales (%)	54.55%	44.79%	12.22%	30.71%	0

EXERCISE 5–8

Closing entries:

General Journal
Date	Account/Explanation	F	Debit	Credit
June 30	Sales		72,000
	Income Summary			72,000
	(to close credit balance temporary accounts)
30	Income Summary		68,000
	Sales Returns and Allowances			2,000
	Cost of Goods Sold			50,000
	Advertising Expense			1,500
	Commissions Expense			4,000
	Delivery Expense			500
	Rent Expense – Store			1,500
	Sales Salaries Expense			2,000
	Depreciation Expense – Equipment			500
	Insurance Expense			1,000
	Office Salaries Expense			3,000
	Rent Expense – Office			1,000
	Income Tax Expense			1,000
	(to close debit balance temporary accounts)
30	Income Summary		4,000
	Retained Earnings			4,000
	(to close balance in Income Summary to Retained Earnings)
30	Retained Earnings		2,000
	Dividends			2,000
	(to close Dividends to Retained Earnings)

The June 30, 2015 post-closing balance in Retained Earnings is $20,000 calculated as:

Retained Earnings
		18,000	Beginning Balance
Dividends	2,000	4,000	Net Income
		20,000	Ending Balance

EXERCISE 5–9

	A	B	C	D
Opening Inventory	500	184	112	750
Purchases	1,415	344	840	5,860
Transportation-In	25	6	15	10
Cost of Goods Available for Sale	1,940	534	967	6,620
Ending Inventory	340	200	135	880
Cost of Goods Sold	1,600	334	832	5,740

EXERCISE 5–10

Opening Inventory	375
Purchases	2,930
Less: Purchases Discounts	5
Less: Purchases Returns and Allowances	20
Transportation-In	105
Less: Ending Inventory	440
Cost of Goods Sold	2,945

EXERCISE 5–11

The completed table is as follows:

	A	B	C	D
Sales	$300	$150	$195	$90
Opening Inventory	80	40	40	12
Purchases	240	120	150	63
Cost of Goods Available for Sale	320	160	190	75
Ending Inventory	(120)	(60)	(60)	(15)
Cost of Goods Sold	200	100	130	60
Gross Profit	$100	$50	$65	$30
Gross Profit percentage	33.33%	33.33%	33.33%	33.33%

All four companies have the same gross profit percentage of 33.33% which means each is contributing equally to operating expenses. In terms of real dollars, Company A is doing the best because its gross profit is $100.

Problems

PROBLEM 5–1

The Salem Corp. general journal is as follows:

General Journal
Date	Account/Explanation	F	Debit	Credit
Jul. 2	Cash		5,000
	Share Capital			5,000
	To record the issue of common shares.
2	Merchandise Inventory		3,500
	Accounts Payable			3,500
	To record Purchases on credit 2/10, n/30, from Blic Pens, Ltd.
2	Accounts Receivable		2,000
	Sales			2,000
	To record sale to Spellman Chair Rentals, Inc.; terms 2/10, n/30.
	Cost of Goods Sold		1,200
	Merchandise Inventory			1,200
	To record the cost of sales.
3	Rent Expense		500
	Cash			500
	To record July rent payment.
5	Equipment		1,000
	Cash			1,000
	To record purchase of equipment.
8	Cash		200
	Sales			200
	To record cash sale to Ethan Matthews Furniture Ltd.
	Cost of Goods Sold		120
	Merchandise Inventory			120
	To record the cost of sales.
8	Merchandise Inventory		2,000
	Accounts Payable			2,000
	To record purchase of merchandise inventory; terms 2/15, n/30, from Shaw Distributors, Inc.
9	Cash		1,960
	Sales Discount		40
	Accounts Receivable			2,000
	To record receipt of amount due from Spellman Chair Rentals, Inc. less the discount.

General Journal
Date	Account/Explanation	F	Debit	Credit
10	Accounts Payable		3,500
	Cash			3,430
	Merchandise Inventory			70
	To record payment to Blic Pens Ltd. less the discount.
10	Merchandise Inventory		200
	Accounts Payable			200
	To record purchase of merchandise inventory from Peel Products, Inc.; terms n/30.
Jul. 15	Accounts Receivable		2,000
	Sales			2,000
	To record sale to Eagle Products Corp. 2/10, n/30.
	Cost of Goods Sold		1,300
	Merchandise Inventory			1,300
	To record the cost of sales.
15	Merchandise Inventory		1,500
	Accounts Payable			1,500
	To record purchase of merchandise inventory from Bevan Door, Inc.; terms 2/10, n/30.
15	Accounts Payable		100
	Merchandise Inventory			100
	To record credit memo from Shaw Distributors, Inc.
16	Sales Returns and Allowances		200
	Accounts Receivable			200
	To record return of defective items sold to Eagle Products Corp.; inventory scrapped.
20	Accounts Receivable		3,500
	Sales			3,500
	To record sale to Aspen Promotions, Ltd. 2/10, n/30.
	Cost of Goods Sold		2,700
	Merchandise Inventory			2,700
	To record the cost of sales.
20	Accounts Payable		950
	Cash			931
	Merchandise Inventory			19
	To record payment of half of the amount due to Shaw Distributors, Inc. less memo and less discount.
24	Cash		882
	Sales Discounts		18
	Accounts Receivable			900
	To record receipt of half of the amount due from Eagle Products Corp.; 2,000 − 200 return = 1,800/2 = 900.
24	Accounts Payable		1,500
	Cash			1,470
	Merchandise Inventory			30
	To record payment made to Bevan Door, Inc. less discount.

General Journal
Date	Account/Explanation	F	Debit	Credit
26	Accounts Receivable		600
	Sales			600
	To record sale to Longbeach Sales, Ltd. for terms 2/10, n/30.
	Cost of Goods Sold		400
	Merchandise Inventory			400
	To record the cost of sales.
Jul. 26	Merchandise Inventory		800
	Accounts Payable			800
	To record purchase from Silverman Co. for terms 2/10, n/30.
31	Merchandise Inventory		350
	Cash			350
	To record payment to Speedy Transport Co. for July transport of inventory to warehouse.

The unadjusted ending balance in merchandise inventory is as follows:

Merchandise Inventory
2-Jul	3,500	1,200	2-Jul
8-Jul	2,000	120	8-Jul
10-Jul	200	70	10-Jul
15-Jul	1,500	1,300	15-Jul
26-Jul	800	100	15-Jul
31-Jul	350	2,700	20-Jul
		19	20-Jul
		30	24-Jul
		400	26-Jul
Unadj. Bal.	2,411

The general journal entry is as follows:

General Journal
Date	Account/Explanation	F	Debit	Credit
July 31	Cost of Goods Sold		11
	Merchandise Inventory			11
	To record adjustment to merchandise inventory calculated as $2,411 − $2,400 = $11.

PROBLEM 5–2

Sales	$37,800
Less: Sales Returns and Allowances	690
Sales Discounts	310
Net Sales	$36,800
Cost of Goods Sold	26,800
Gross Profit	$10,000

PROBLEM 5–3

The income statement and statement of changes in equity are as follows:

Acme Automotive Inc. Income Statement Year Ended December 31, 2015
Sales			$310,000
Less: Sales returns and allowances		$2,900
Sales discounts		1,300	4,200
Net sales			$305,800
Cost of goods sold			126,000
Gross profit			$179,800
Operating expenses:
Selling expenses:
Advertising expense	$14,000
Commissions expense	29,000
Delivery expense	14,800
Rent expense	19,440
Sales salaries expense	26,400
Total selling expenses		$103,640
General and administrative expenses:
Depreciation expense	$12,000
Insurance expense	10,400
Office supplies expense	3,100
Rent expense	12,960
Telephone expense	1,800
Utilities expense	4,200
Wages expense – office	14,300
Total general and administrative expenses		58,760
Total operating expenses			162,400
Income from operations			$17,400
Other revenues and expenses:
Rent revenue		$19,200
Interest expense		(840)	18,360
Income before tax			$35,760
Income tax expense			4,200
Net income			$31,560

Acme Automotive Inc. Statement of Changes in Equity Year Ended December 31, 2015
	Share Capital	Retained Earnings	Total Equity
Opening balance	$50,000	$12,440	$62,440
Shares issued	20,000		20,000
Net income		31,560	31,560
Dividends		(11,000)	(11,000)
Ending balance	$70,000	$33,000	$103,000

Closing entries:

General Journal
Date	Account/Explanation	F	Debit	Credit
Dec. 31	Sales		310,000
	Rent Sales		19,200
	Income Summary			329,200
	(to close credit balance temporary accounts)
31	Income Summary		297,640
	Sales Returns and Allowances			2,900
	Sales Discounts			1,300
	Cost of Goods Sold			126,000
	Advertising Expense			14,000
	Commissions Expense			29,000
	Delivery Expense			14,800
	Rent Expense			32,400
	Sales Salaries Expense			26,400
	Depreciation Expense			12,000
	Insurance Expense			10,400
	Office Supplies Expense			3,100
	Telephone Expense			1,800
	Utilities Expense			4,200
	Wages Expense – Office			14,300
	Interest Expense			840
	Income Tax Expense			4,200
	(to close debit balance temporary accounts)
31	Income Summary		31,560
	Retained Earnings			31,560
	(to close Income Summary to Retained Earnings)
31	Retained Earnings		11,000
	Dividends			11,000
	(to close Dividends to Retained Earnings)

PROBLEM 5–4

Answers for the missing boxes are in the colored cells.

Inventory, opening balance			55,000
Plus: purchases		250,000
Plus: sales returns to inventory	100
Plus: purchase shipping costs	500
Less: Purchase returns and allowances	200
Less: Purchase discounts	3,500	3,100
Net purchases			246,900

Total goods available for sale			301,900
Ending inventory, per GL	90,000
Less shrinkage adjustment (90,000−88,500)	1,500		88,500
Cost of goods sold			213,400

Sales		580,000
Less: sales discounts	200
Less: sales returns	200
Less: sales allowances	600	1,000
Net sales			579,000

Gross profit			365,600
Less: operating expenses			250,000
Net income/(loss)			115,600
Gross profit/sales (%) (365,600÷579,000)			63.14%

PROBLEM 5–5

Turret Retail Ltd. Income Statement For the Year Ended December 31, 2016
Sales		$360,000
Less: Sales discounts	$3,600
Sales returns and allowances	9,600	13,200
Net sales		346,800
Cost of goods sold		240,000
Gross profit from sales		106,800

Operating expenses
Salaries expense	57,000
Insurance expense	5,000
Shop supplies expense	1,000
Depreciation expense	3,200
Rent expense	30,240
Travel expense	2,100
Utilities expense	7,300
Total operating expenses		105,840
Income from operations		960
Other revenue and expenses
Rental income	6000
Interest expense	200	5,800
Income before tax		6,760
Income tax expense		2,028
Net income		$4,732

General Journal
Date	Account/Explanation	F	Debit	Credit
Dec 31	Rental income		6,000
	Sales		360,000
	Income summary			366,000
	To close temporary revenue accounts.

Dec 31	Income summary		108,068
	Salaries expense			57,000
	Insurance expense			5,000
	Shop supplies expense			1,000
	Depreciation expense			3,200
	Rent expense			30,240
	Travel expense			2,100
	Utilities expense			7,300
	Interest expense			200
	Income tax expense			2,028
	To close temporary expense accounts.

Dec 31	Income Summary		4,732
	Retained earnings			4,732
	To close income summary to retained earnings.

Dec 31	Retained earnings		10,000
	Cash dividends			10,000
	To close temporary cash dividend account.

Gross profit ratio = gross profit/Net sales = $106,800÷346,800 = 30.8%
This ratio means that for every $100 of sales, the company has $30.8 left to cover operating expenses after deducting cost of goods sold. This ratio can be compared to other companies in the same industry or to historical trends within the same company. A small fluctuation in the ratio can often cause a large increase/decrease in gross profit, if inventory and sales dollar amounts are often the largest amounts reported on the income statement.

PROBLEM 5–6

Yuba Yabi Enterprises Ltd. Trial Balance March 31, 2017
	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance
	Debit	Credit	Debit	Credit	Debit	Credit
Accounts payable		$68,750				$68,750
Accounts receivable	$308,000				$308,000
Accrued salaries and benefits payable		26,400		$12,000		38,400
Accumulated depreciation, furniture		9,460				9,460
Cash	46,200				46,200
Cash dividends	22,000				22,000
Cost of goods sold	528,000		$7,800		535,800
Advertising expense	9,900				9,900
Bank loan payable (long-term)		88,704				88,704
Depreciation expense	7,040				7,040
Copyright	44,000				44,000
Franchise	66,000				66,000
Furniture	44,000				44,000
Income tax expense	–		149,872$^{}$		229,481
Income taxes payable		17,600		149,872\(^{}\)*		247,081
Insurance expense	11,000		5,000		16,000
Interest expense	440		5,600		6,040
Interest payable		1,210		5,600		6,810
Land	308,000				308,000
Merchandise inventory	264,000			7,800	256,200
Prepaid insurance expense	13,200			5,000	8,200
Prepaid advertising expense	8,800				8,800
Rent expense	66,528				66,528
Rental income		13,200				13,200
Retained earnings		265,364				265,364
Salaries expense	125,400		12,000		137,400
Sales		792,000				792,000
Sales discounts	7,920				7,920
Sales returns and allowances	21,120				21,120
Service revenue		495,000		30,000		525,000
Share capital		44,000				44,000
Shop supplies	8,360				8,360
Shop supplies expense	2,200				2,200
Travel expense	4,620				4,620
Unearned service revenue		111,100	30,000			81,100
Utilities expense	16,060				16,060

	$1,932,788	$1,932,788	$210,272	$210,272	$2,179,869	$2,179,869

$^{*}$ Income tax expense calculation:

Cost of goods sold	$535,800
Advertising expense	9,900
Depreciation expense	7,040
Insurance expense	16,000
Interest expense	6,040
Rent expense	66,528
Rental income		$13,200
Salaries expense	137,400
Sales		792,000
Sales discounts	7,920
Sales returns and allowances	21,120
Service revenue		525,000
Shop supplies expense	2,200
Travel expense	4,620
Utilities expense	16,060
	$830,628	$1,330,200
Net income before taxes		499,572
Income taxes @ 30%		$149,872	adjusting entry

Turret Retail Ltd. Income Statement For the Year Ended December 31, 2016
Sales		$792,000
Less: Sales discounts	$7,920
Sales returns and allowances	21,120	29,040
Net sales		762,960
Cost of goods sold		535,800
Gross profit from sales		227,160
Service revenue		525,000
		752,160
Operating expenses
Salaries expense	137,400
Insurance expense	16,000
Advertising expense	9,900
Shop supplies expense	2,200
Depreciation expense	7,040
Rent expense	66,528
Travel expense	4,620
Utilities expense	16,060
Total operating expenses		259,748
Income from operations		492,412
Other revenue and expenses
Rental income	13,200
Interest expense	6,040	7,160
Income before tax		499,572
Income tax expense		149,872
Net income		$349,700