You are a summer intern at the office of a local tax-preparer. To test your basic knowledge of financial statements, your manager, who graduated from your alma mater 2 years ago, gives you the following list of accounts and asks you to prepare a simple income statement using those accounts.
Depreciation 25
General and administrative expenses 22
Sales 345
Sales expenses 18
Cost of goods sold 255
Lease expense 4
Interest expense 3
a. Arrange the accounts into a well-labeled income statement. Make sure you label and solve for gross profit, operating profit, and net profit before taxes.
b. Using a 35% tax rate, calculate taxes paid and net. profit after taxes.
c. Assuming a dividend of $1.10 per share with 4.25 million shares outstanding, calculate EPS and additions to retained earnings.
E2-2 Explain why the income statement can also be called a "profit and loss statement." What exactly does the word "balance" mean in the title of the balance sheet? Why do we balance the two halves?
Depreciation 25
General and administrative expenses 22
Sales 345
Sales expenses 18
Cost of goods sold 255
Lease expense 4
Interest expense 3
a. Arrange the accounts into a well-labeled income statement. Make sure you label and solve for gross profit, operating profit, and net profit before taxes.
b. Using a 35% tax rate, calculate taxes paid and net. profit after taxes.
c. Assuming a dividend of $1.10 per share with 4.25 million shares outstanding, calculate EPS and additions to retained earnings.
E2-2 Explain why the income statement can also be called a "profit and loss statement." What exactly does the word "balance" mean in the title of the balance sheet? Why do we balance the two halves?