1.
Prepare the classified income statement (with earnings per share) and
1.
Explanation of Solution
Financial statement: Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making. The financial statement reports the financial status of the business. The financial statements consist of the balance sheet, income statement, statement of retained earnings, and the cash flow statement.
Multi step income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations under different sub-totals, as net income or net loss for a particular time period is referred to as income statement.
Balance Sheet: Balance Sheet summarizes the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare the Classified Statement of income of Incorporation PC for the year ended December 31 is given below:
Incorporation PC | ||
Consolidated statement of income | ||
For the year ended December 31 | ||
Particulars |
Amount (in Thousands) |
Amount (in Thousands) |
Net sales | $1,793,318 | |
Less: Cost of sales | ($1,261,728) | |
Gross profit | $531,590 | |
Less: Operating expense | ||
Selling, general and administrative expense | $406,523 | |
Total operating expenses | ($406,523) | |
Operating income | $125,067 | |
Less: Other income/(expense): | ||
Interest expense | ($7,755) | |
Other income/(expense), net | ($7,755) | |
Income before income taxes | $117,312 | |
Less: Provision for income tax | ($45,319) | |
Net Income | $71,993 | |
Earnings per share: | ||
Basic earnings per share (1) | $1.49 | |
Number of shares outstanding | 48,158 |
Table (1)
Working Note:
Determine the earnings per share.
Hence, the net income of Incorporation PC for the year ended December 31 amounts to $71,993 and the earnings per share is $1.49.
Prepare the Consolidated Balance sheet of Incorporation PC as on December 31 is given below:
Incorporation PC | ||
Consolidated Balance sheet | ||
As on December 31 | ||
Assets |
Amount (in Thousands) |
Amount (in Thousands) |
Current assets | ||
Cash and cash equivalents | $17,487 | |
Receivables, net | $110,555 | |
Product inventories | $386,924 | |
Prepaid expenses and other current assets | $23,035 | |
Total current assets | $538,001 | |
Non-current assets: | ||
Property and equipment, net | $41,394 | |
Intangible assets | $188,841 | |
Other non-current assets, net | $30,386 | |
Total assets | $798,622 | |
Liabilities and |
Amount (in Thousands) |
Amount (in Thousands) |
Current liabilities: | ||
Accounts Payables | $177,437 | |
Accrued expenses and other current liabilities | $53,398 | |
Current portion of long-term debt | $22 | |
Total current liabilities | $230,857 | |
Non-current liabilities: | ||
Long term debt | $247,300 | |
Other long term liabilities | $40,719 | |
Total liabilities | $518,876 | |
Stockholders’ Equity: | ||
Common Stock, 48,158 shares outstanding | $47 | |
Additional paid-in-capital | $173,180 | |
Retained Earnings (2) | $106,519 | |
Total Stockholder's Equity | $279,746 | |
Total liabilities and stockholder's equity | $798,622 |
Table (2)
Working Note:
Determine the amount of retained earnings.
Hence, the total of assets and liabilities of Incorporation PC as on December 31 amounts to $798,622.
2.
Compute the gross profit percentage and return on assets.
2.
Explanation of Solution
Gross Profit Percentage: Gross profit is the financial ratio that shows the relationship between the gross profit and net sales. It represents gross profit as a percentage of net sales. Gross Profit is the difference between the net sales revenue, and the cost of goods sold. It can be calculated by dividing gross profit and net sales.
Determine the gross profit percentage.
Hence, the gross profit percentage of Incorporation PC is 29.64%.
Return on assets: Return on assets is the financial ratio which determines the amount of net income earned by the business with the use of total assets owned by it. It indicates the magnitude of the company’s earnings with relative to its total assets. The formula is stated below:
Determine the return on assets.
Determine the amount of average total assets.
Hence, the return on assets of Incorporation PC is 9.42%.
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Chapter 5 Solutions
FINANCIAL ACCOUNTING 9TH
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