# Accounting for Merchandising Operations

Kayla Incorporation operates a retail operation that purchases and sells home entertainment products. The company purchase 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 2016 through 2019, inclusive.

### Instructions

1. Calculate the missing amounts.
2. Sales declined over the 3-year fiscal period, 2017-2019. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin(Net income + Sales revenue) for each fiscal year to help support your answer (Round to one decimal place.)

### Solution

a.
Calculating Missing Amounts

b.
According to the given data, the profitability declined as per the sales decline. The gross profit rates for 2017 to 2019 are \$38,300/\$55,000 = 69%, \$35,200/\$50,000 = 70%, and \$32,700/\$47,000 = 69% indicate that the profitability declined over the 3-year fiscal period.