P5-6B Howit Inc. operates a retail operation that purchases and sells snowmobiles,

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P5-6B Howit Inc. operates a retail operation that purchases and sells snowmobiles,
amongst other outdoor products.The company purchases 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 2005 through 2008,
inclusive.
2005 2006 2007 2008
Income Statement Data
Sales $96,850 $ (e) $82,220
Cost of goods sold (a) 25,140 25,990
Gross profit 69,640 61,540 (i)
Operating expenses 63,500 (f) 52,060
Net income $ (b) $ 4,570 $ (j)
Balance Sheet Data
Merchandise inventory $13,000 $ (c) $14,700 $ (k)
Accounts payable 5,800 6,500 4,600 (l)
Additional Information
Purchases of merchandise
inventory on account $25,890 $ (g) $24,050
Cash payments to suppliers (d) (h) 24,650

Instructions
(a) Calculate the missing amounts.

(b) Sales declined over the 3-year fiscal period, 2006–2008. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin ratio
for each fiscal year to help support your answer. (Round to one decimal place.)