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Chapter 2: 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

A firm has net income before interest and taxes of \(193,000 and interest expense of \)28,100.

a. What is the times-interest-earned ratio?

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.

a. Compute return on assets at year-end for 2007, 2009, 2012, 2014, and 2016.

(Use $29,000 in the numerator for each year.)

If the accounts receivable turnover ratio is decreasing, what will be happening to the average collection period?

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

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

Current assets

Liabilities

Cash

\(15,000

Accounts payable

\)17,000

Accounts receivable

20,000

Notes payable

25,000

Inventory

30,000

Bonds payable

55,000

Prepaid expenses

12,500

Fixed assets

Stockholder’s equity

Plant and equipment (gross)

Less: accumulated depreciation

\(255,000

51,000

Preferred stock

\)25,000

Net plant and equipment

\(204,000

Common stock

60,000

Paid in capital

30,000

Retained earnings

69,500

Total assets

\)281,500

Total liabilities and stockholder’s equity

\(281,500

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.

a. Prepare an income statement for 20X2.
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