Tuesday 12 June 2012

The following is the December 31, 2003 balance sheet for the Epics Corporation.

The following is the December 31, 2003 balance sheet for the Epics Corporation.

Assets Liabilities
Cash $ 70,000 Accounts Payable $ 100,000
Accounts Receivable 150,000 Notes Payable 120,000
Inventory 280,000 Bonds Payable 300,000
Total Current Assets $ 500,000 Total Liabilities $ 520,000
Plant and Equipment $1,250,000 Equity
Less: Accum. Deprec. 250,000 Common Stock 300,000
Net plant and Equipment $1,000,000 Paid In Capital 200,000
Retained Earnings 480,000
Total Assets $1,500,000 Total Equity $ 980,000
Total Liab. & Equity $1,500,000

Sales for 2003 were $2,000,000, with the cost of goods sold being 55% of sales. Depreciation expense was 10% of the gross plant and equipment at the beginning of the year. Interest expense was 9% on the notes payable and 11% on the bonds payable. Selling and administrative expenses were $200,000 and the firm’s tax rate is 40%.

Prepare an income statement.

Difficulty: Medium
Answer:

Income Statement
Sales $2,000,000
Less: Cost of Goods Sold 1,100,000
Gross Profit 900,000
Less: Selling and Administrative Expense 200,000
Depreciation expense 125,000
EBIT 575,000
Less: Interest Expense (10,800 + 33,000) 43,800
EBT 531,200
Less: Taxes (40%) 212,480
Net Earnings $ 318,720

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