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Chapter 2: 5BP (page 48)

Arrange the following income statement items so they are in the proper order of an income statement:

Taxes

Earning per share

Share Outstanding

Earning before taxes

Interest Expense

Cost of goods sold

Depreciation Expense

Earning after taxes

Preferred Stcok dividends

Earning available to common stockholders

Sales

Selling and administrative expense

Gross profit

Short Answer

Expert verified

The costs of goods sold are deducted from sales to derive the gross profits. The gross profits are further reduced by selling and administrative cost, interest expense, depreciation expense to derive the earnings before tax. The taxes are subtracted from the earnings before tax to derive the earnings after tax. The preferred stock dividends are further reduced to derive earnings available to common stockholders. The earnings of common stockholders are divided by shares outstanding to calculate the earnings per share.

Step by step solution

01

Income statement

An income statement is a major component of the financial statement prepared by an organization to show its financial performance.

02

Arrangement of income item in proper order

S.no.

Particulars

1.

Sales

2.

Cost of goods sold

3.

Gross profit

4.

Selling and administrative cost

5.

Interest Expense

6.

Depreciation Expense

7.

Earning Before taxes

8.

Taxes

9.

Earning after taxes

10.

Preferred stock dividends

11.

Earning available to common stockholders

12.

Shares outstanding

13.

Earnings per shares

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Most popular questions from this chapter

Discuss some financial variables that affect the price-earnings ratio

Conn Man鈥檚 Shops, a national clothing chain, had sales of \(350 million last year. The business has a steady net profit margin of 9 percent and a dividend payout ratio of 25 percent. The balance sheet for the end of last year is shown next. The firm鈥檚 marketing staff has told the president that in the coming year

there will be a large increase in the demand for overcoats and wool slacks. A

sales increase of 20 percent is forecast for the company.

BALANCE SHEET

End of year (in \) million)

Assets

Liabilities and Stockholder鈥檚 equity

Cash

\(25

Accounts payable

\)64

Accounts receivable

40

Accrued expenses

31

Inventory

82

Other payables

45

Plant and equipment

133

Common stock

50

Retained earnings

90

Total assets

\(280

Total liabilities and stockholder鈥檚 equity

\)280

All balance sheet items are expected to maintain the same percent-of-sales relationships as last year,* except for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember the net profit margin is 9 percent.)

b. What would be the need for external financing if the net profit margin went up to 10.5 percent and the dividend payout ratio was increased to 60 percent? Explain.

Given the following information, prepare an income statement for the Dental Drilling Company.

Selling and administrative expenses

$112,000

Depreciation expenses

73,000

Sales

489,000

Interest expenses

45,000

Cost of goods sold

156,000

Taxes

47,000

If we divide users of ratios into short-term lenders, long-term lenders, andstockholders,which ratios would each group be most interested in, and for

what reasons?

Mansfield Corporation had 20X1 sales of \(100 million. The balance sheet items that vary directly with sales and the profit margin are as follows:

Percent

Cash

5%

Accounts receivable

15

Inventory

20

Net fixed assets

40

Accounts payable

15

Accruals

10

Profit margin after tax

10%

The dividend payout rate is 50 percent of earnings, and the balance in retained earnings at the end of 20X1 was \)33 million. Notes payable are currently \(7 million. Long-term bonds and common stock are constant at \)5 million and $10 million, respectively.

a. How much additional external capital will be required for next year if sales

increase 15 percent? (Assume that the company is already operating at full

capacity.)
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