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4. A-Rod Fishing Supplies had sales of $2,000,000 and cost of goods sold of
$1,250,000. Selling and administrative expenses represented 8 percent of sales.
Depreciation was 5 percent of the total assets of $4,000,000. What was the firms
operating profit? Operating Profit (LO1)
Sales
Cost of goods sold
Gross Profit
Selling & administrative expense
8% x $2,000,000 = $160,000
Depreciation expense
5% x $4,000,000 = $200,000
Operating profit
$2,000,000
1,250,000
750,000
160,000
200,000
$ 390,000
6. Given the following information prepare in good form an income statement for
the Dental Drilling Company.
Selling and administrative expense ............................................................ $ 60,000
Depreciation expense ........................................................................................
70,000
Sales .......................................................................................................................... 470,000
Interest expense ..................................................................................................
40,000
Cost of goods sold ........................................................................................... 140,000
Taxes .....................................................................................................................
45,000
Sales
Cost of goods sold
Gross Profit
Selling & administrative expense
Depreciation expense
Operating profit
Interest Expense
Earnings before taxes
Taxes
$470,000
140,000
330,000
60,000
70,000
200,000
40,000
160,000
45,000
115,000
7. Given the following information, prepare in good form an income statement for
Jonas Brothers Cough Drops.
Selling and administrative expense ............................................................ $ 250,000
Depreciation expense ........................................................................................ 190,000
Sales .......................................................................................................................... 1,600,000
Interest expense .................................................................................................. 120,000
Cost of goods sold ............................................................................................... 480,000
Taxes ........................................................................................................................ 165,000
Sales
Cost of goods sold
Gross Profit
Selling & administrative expense
Depreciation expense
Operating profit
Interest Expense
Earnings before taxes
Taxes
Earnings after taxes
$1,600,000
480,000
1,120,000
250,000
190,000
680,000
120,000
560,000
165,000
395,000
b . Assume in 2011, sales increase by 10 percent and cost of goods sold increases
by 20 percent. The firm is able to keep all other expenses the same. Once again,
assume a tax rate of 30 percent on income before taxes. What are income after taxes
and the profit margin for 2011?
Sales ................................................................................................ $2,200,000 (2,000,000 x 1.10)
Cost of goods sold ..................................................................... 1,400,000 (1,400,000 x 1.20)
Gross profit ..................................................................................
520,000
Selling and administrative expense ..................................
300,000
Operating profit .........................................................................
220,000
Interest expense ........................................................................
50,000
Income before taxes ................................................................
170,000
Taxes (30%) ................................................................................
51,000
Income after taxes .................................................................... $ 119,000
21. Jim Shorts Company makes clothing for schools. Sales in 2010 were
$4,000,000. Assets were as follows: Turnover ratios (LO2)
Cash ................................................................................. $ 100,000
Accounts receivable .................................................
800,000
Inventory ......................................................................
400,000
Net plant and equipment .......................................
500,000
Total assets ......................................................... $1,800,000
a . Compute the following:
2. Inventory turnover
b . In 2011, sales increased to $5,000,000 and the assets for that year were as
follows:
Cash ................................................................................. $ 100,000
Accounts receivable .................................................
900,000
Inventory ......................................................................
975,000
Net plant and equipment .......................................
500,000
Total assets ....................................................
$2,475,000
Once again, compute the four ratios.
1. Accounts receivable turnover
2. Inventory turnover