31BP_b The Canton Corporation shows the... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 31BP_b (page 85)

The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.
CANTON CORPORATION
Income Statement for 20X1
Sales
$272,800 (17,600 units at $15.50)
Cost of goods sold
123,200 (17,600 units at $7)
Gross profit
$149,600
Selling and administrative expenses
13,640
Depreciation
15,900
Operating profits
$120,060
Taxes (30%)
36,018
After tax income
$84,042
b. In part a, by what percent did aftertax income increase as a result of a 10 percent increase in the sales price? Explain why this impact took place.

Short Answer

Expert verified

The after tax income is increased by 21.59% due to increment in revenue without any change in costs of goods sold and the related expenses.

Step by step solution

Increment in the after tax income of the company

$\begin{array}{rcl} Increment in after tax income & = & \frac{Net income of 20 X 2 - Net income of 20 X 1}{Net income of 20 X 1} \\ = & \frac{$ 102, 183 - $ 84, 042}{$ 84, 042} \\ = & 21.59 % \end{array}$

Reason of change in net income after tax

The net income after tax of the company is increased by 21.59% because the revenue is increased by 10% and the cost of goods sold is stable at the same price

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Stud Clothier
Balance sheet 20X1
Assets		Liabilities and Equity
Cash	\)60,000	Account payable	\(220,000
Account receivable	240,000	Accrued taxes	30,000
Inventory	350,000	Bonds payable (long term)	150,000
Plant and equipment	410,000	Common stock	80,000
		Paid in capital	200,000
		Retained earnings	380,000
Total assets	\)1,060,000	Total LIbilities and Equity	$1,060,000

Times mirror and glass company
Sales	\(126,000
Less: Cost of goods sold	93,000
Gross profit	\)33,000
Less: selling and administrative expenses	11,000
Lease Expenses	4,000
Operating profit*	\(18,000
Less: Interest expenses	3,000
Earning before taxes	\)15,000
Less: Taxes (30%)	4,500
Earning after taxes	$10,500

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Short Answer

Step by step solution

Increment in the after tax income of the company

Reason of change in net income after tax

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CANTON CORPORATION
Income Statement for 20X1
Sales	\(272,800 (17,600 units at \)15.50)
Cost of goods sold	123,200 (17,600 units at \(7)
Gross profit	\)149,600
Selling and administrative expenses	13,640
Depreciation	15,900
Operating profits	\(120,060
Taxes (30%)	36,018
After tax income	\)84,042