Financial Accounting: An Integrated Statements Approach, 2nd Edition

CVS Corporationoperates drugstores throughout the United States, selling prescription drugs,

general merchandise, cosmetics, greeting cards, food, and beverages. For 2004, CVS reported (in

thousands) net sales of $30,594,300, cost of sales of $22,563,100, and operating income of

$1,454,700.

a. Determine CVS’s gross profit.

b. Determine the gross profit as a percent of net sales. Round to one decimal place.

c. Determine the operating income as a percent of net sales. Round to one decimal place.

Walgreen Companyoperates drugstores throughout the United States, selling prescription

drugs, general merchandise, cosmetics, food, and beverages. For 2004, Walgreen reported (in

thousands) net sales of $37,508,200, cost of sales of $27,310,400, and operating income of $2,126,100.

a. Determine Walgreen’s gross profit.

b. Determine the gross profit as a percent of net sales. Round to one decimal place.

c. Determine the operating income as a percent of net sales. Round to one decimal place.

Based upon the data shown in Exercises 5–1 and 5–2, comment on the operating performance of

CVS in comparison to Walgreen.

During the current year, merchandise is sold for $200,000 cash and for $950,000 on account. The

cost of the merchandise sold is $805,000.

a. What is the amount of the gross profit?

b. Compute the gross profit as a percent of sales.

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

Office Depotoperates a chain of office supply stores throughout the United States. For 2004,

Office Depot reported (in thousands) net sales of $13,564,699, gross profit of $4,256,139, and op-

erating income of $529,977.

a. Determine the cost of goods sold.

b. Determine the cost of goods sold as a percent of net sales. Round to one decimal place.

c. Determine the gross profit as a percent of net sales. Round to one decimal place.

d. Determine the operating income as a percent of net sales. Round to one decimal place.

e. What is the difference between the gross profit as a percent of net sales and the operating

income as a percent of net sales? Explain.

For the fiscal year, sales were $3,570,000, sales discounts were $320,000, sales returns and al-

lowances were $240,000, and the cost of merchandise sold was $2,142,000. What was the amount

of net sales and gross profit?

242 Chapter 5 Accounting for Merchandise Operations

EXERCISES

Exercise 5-1

Determining gross profit

Goals1, 9

a. $8,031,200

Exercise 5-2

Determining gross profit

Goals1, 9

a. $10,197,800

Exercise 5-3

Analyzing gross profit and

operating income

Goals1, 9

Exercise 5-4

Determining gross profit

Goals1, 9

a. $345,000

Exercise 5-5

Determining gross profit

Goals1, 9

a. $9,308,560

Exercise 5-6

Income statement for

merchandiser

Goal 2