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Chapter 2: 7BP (page 48)
Given the following information, prepare an income statement for Jonas Brothers Cough Drops.
Selling and administrative expenses | $328,000 |
Depreciation expenses | 195,000 |
Sales | 1,660,000 |
Interest expenses | 129,000 |
Cost of goods sold | 560,000 |
Taxes | 171,000 |
The net income after tax arrives at $277,000.
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Explain why the statement of cash flows provides useful information that goes beyond income statement and balance sheet data.
Inflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of inflation on the following ratios, and explain the direction of the impact based on your assumptions.
a. Return on investment
The Haines Corp. shows the following financial data for 20X1 and 20X2:
20X1 | 20X2 | |
Sales | \(3,230,000 | \)3,370,000 |
Cost of goods sold | 2,130,000 | 2,850,000 |
Gross profits | \(1,100,000 | \)520,000 |
Selling and administrative expenses | 298,000 | 227,000 |
Operating profits | \(802,000 | \)293,000 |
Interest expense | 47,200 | 51,600 |
Income before taxes | \(754,800 | \)241,400 |
Taxes (35%) | 264,180 | 84,490 |
Income after tax | \(490,620 | \)156,910 |
For each year, compute the following and indicate whether it is increasing or
decreasing profitability in 20X2 as indicated by the ratio:
a. Cost of goods sold to sales.
Indicate if there is an improvement or decline in total asset turnover, and based on the other ratios, indicate why this development has taken place.
In January 2007, the Status Quo Company was formed. Total assets were \(544,000, of which \)306,000 consisted of depreciable fixed assets. Status
Quo uses straight-line depreciation of \(30,600 per year, and in 2007 it estimated its fixed assets to have useful lives of 10 years. Aftertax income has been \)29,000 per year each of the last 10 years. Other assets have not changed since 2007.
b. To what do you attribute the phenomenon shown in part a?
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