You have been presented with Kelliher Ltd. s income statement for the year ended September 30, 2017.

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You have been presented with Kelliher Ltd. s income statement for the year ended September 30, 2017. Kelliher Ltd. Income Statement For the Year Ended September 30, 2017 Sales …………. $5,100,000 Cost of sales………. 2,295,000 Gross margin………. 2,805,000 Expenses: Salaries and wages……. 1,101,600 Depreciation………. 394,800 Selling and administrative…. 580,000 Interest………. 200,000 Other…………. 130,000 Unusual items—lawsuit revenue… 400,000 Income before income taxes….. 798,600 Income tax expense……. 239,580 Net income………. $ 559,020 In addition, you have learned the following: • Cost of sales in 2017 includes a write-down of inventory of $118,000. The amount of the write-down is about three times larger than the amount usually written down each year to account for non-salable inventory or inventory that will have to be sold at a deep discount. • Sales include $500,000 for a one-time-only sale to the government of a foreign country. The gross margin percentage on this sale was 60 percent, which is significantly higher than what Kelliher normally experiences. • Selling and administrative costs includes a $80,000 retirement bonus paid to the former CEO. • Kelliher signed a contract with its employees that goes into effect on October 1, 2017. The contract increases union employees wages and benefits by 4 percent. Wages to employees covered by the contract represent 70 percent of salari

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