Financial & Managerial Accounting 3rd Edition by Charles Horngren,Harrison, Walter,Suzanne Oliver

Exercise 43

Link Back to Chapter 4 ( Classified Balance Sheet, Current Ratio, and Debt Ratio ). Jan Lorange manages Poppa Rollo's Pizza, Inc., which has prospered during its second year of operation. In order to help her decide whether to open another pizzeria, Lorange has prepared the current income statement of the business. Lorange read in an industry trade journal that a successful two-year-old pizzeria meets the following criteria:
a. Gross profit percentage is at least 60%.
b. Net income is at least $90,000.
Lorange believes the business meets both criteria. She intends to go ahead with the expansion plan and asks your advice on preparing the income statement in accordance with generally accepted accounting principles. When you point out that the statement includes errors, Lorange assures you that all amounts are correct. But some items are listed in the wrong place.
Requirement
1. Prepare a multi-step income statement and make a recommendation about whether Lorange should undertake the expansion.