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Chapter 2: Q10BP (page 49)

Precision Systems had sales of \(820,000, cost of goods of \)510,000, selling and administrative expense of \(60,000, and operating profit of \)103,000. What was the value of depreciation expense? Set this problem up as a partial income statement and determine depreciation expense as the 鈥減lug鈥� figure required to obtain the operating profit.

Short Answer

Expert verified

The depreciation expense of Precision Systmen is $147,000.

Step by step solution

01

The following amounts are given

Sales

$820,000

Cost of goods sold

510,000

Selling and administrative expenses

60,000

Operating profit

103,000

02

Calculation of the depreciation

Depreciation=Sales-Costsofgoodssold-Sellingandadministrativeexpense-OperatingProfit=$820,000-$510,000-$60,000-$103,000=$147,000

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Most popular questions from this chapter

What advantage does the fixed charge coverage ratio offer over simply using times interest earned?

Quantum Technology had \(669,000 of retained earnings on December 31, 20X2. The company paid common dividends of \)35,500 in 20X2 and had retained earnings of $576,000 on December 31, 20X1. How much did Quantum Technology earn during 20X2, and what would earnings per share be if 47,400 shares of common stock were outstanding?

Why is interest expense said to cost the firm substantially less than the actual expense, while dividends cost it 100 percent of the outlay?

Stein Books Inc. sold 1,900 finance textbooks for \(250 each to High Tuition University in 20X1. These books cost \)210 to produce. Stein Books spent \(12,200 (selling expense) to convince the university to buy its books. Depreciation expense for the year was \)15,200. In addition, Stein Books borrowed $104,000 on January 1, 20X1, on which the company paid 12 percent interest. Both the interest and principal of the loan were paid on December 31, 20X1. The publishing firm鈥檚 tax rate is 30 percent. Did Stein Books make a profit in 20X1? Please verify with an income statement.

For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:

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\(15,000

Accounts payable

\)17,000

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Bonds payable

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Prepaid expenses

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Sales for 20X2 were \)245,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was \(24,500. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 10 percent, while the interest rate on the bonds payable was 12 percent. This interest expense is based on December 31, 20X1 balances. The tax rate averaged 20 percent.

\)2,500 in preferred stock dividends were paid, and \(5,500 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.

During 20X2, the cash balance and prepaid expenses balances were

unchanged. Accounts receivable and inventory increased by 10 percent. A new machine was purchased on December 31, 20X2, at a cost of \)40,000. Accounts payable increased by 20 percent. Notes payable increased by \(6,500 and bonds payable decreased by \)12,500, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change.

b. Prepare a statement of retained earnings for 20X2.
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