E5-14 On January 1, 2008, Rachael Ray Corporation had merchandise inventory of $50,000.
At December 31, 2008, Rachael Ray had the following account balances.
| Freight in | 4,000 |
| Purchases | 500,000 |
| Purchase discounts | 6,000 |
| Purchase returns and allowances | 2,000 |
| Sales | 800,000 |
| Sales discounts | 5,000 |
| Sales returns and allowances | 10,000 |
At December 31, 2008, Rachael Ray determines that its ending inventory is $60,000.
Instructions
(a) Compute Rachael Ray’s 2008 gross profit.
(b) Compute Rachael Ray’s 2008 operating expenses if net income is $130,000 and there are no
nonoperating activities.
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