Learning Materials
Features
Discover
Chapter 2: Q5BP (page 78)
Elizabeth Tailors Inc. has assets of $8,940,000 and turns over its assets 1.9 times per year. Return on assets is 13.5 percent. What is the firm’s profit margin (returns on sales)?
The profit margin of the company is 7.11%.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Dr. Zhivàgo Diagnostics Corp.’s income statement for 20X1 is as follows
| Sales | \( 2790000 |
| Cost of goods sold | 1790000 |
| Gross profits | \) 1000000 |
| Selling and administrative expenses | 302000 |
| Operating profits | \( 698000 |
| Interest Expense | 54800 |
| Income before tax | \) 643200 |
| Taxes 30% | 192960 |
| Income after tax | $ 450240 |
b. Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?
The Lancaster Corporation’s income statement is given below.
a. What is the times-interest-earned ratio?
Lancaster corporation | |
Sales | \(246,000 |
Cost of goods sold | 122,000 |
Gross profit | \)124,000 |
Fixed charges (other than interest) | 27,500 |
Income before interest and taxes | \(96,500 |
Interest | 21,800 |
Income before taxes | \)74,700 |
Taxes (35%) | 26,145 |
Income after taxes | $48,555 |
Fill in the blank spaces with categories 1 through 7:
1. Balance sheet (BS)
2. Income statement (IS)
3. Current assets (CA)
4. Fixed assets (FA)
5. Current liabilities (CL)
6. Long-term liabilities (LL)
7. Stockholders’ equity (SE)
Indicate whether item is on Balance sheet (BS) or Income statement (IS) | If on Balance sheet, designate which category | Item |
Accounts receivable | ||
Retained earnings | ||
Income tax expense | ||
Accrued expense | ||
Cash | ||
Selling and administrative expenses | ||
Plant and equipment | ||
Operating expenses | ||
Marketable securities | ||
Interest expense | ||
Sales | ||
Notes payable (6 month) | ||
Bonds payable, maturity 2019 | ||
Common stock | ||
Depreciation expense | ||
Inventories | ||
Capital in excess of par value | ||
Net income (earning after tax) | ||
Income tax payable |
Using the income statement for Times Mirror and Glass Co., compute the following ratios:
a. The interest coverage.
Times mirror and glass company | |
Sales | \(126,000 |
Less: Cost of goods sold | 93,000 |
Gross profit | \)33,000 |
Less: selling and administrative expenses | 11,000 |
Lease Expenses | 4,000 |
Operating profit* | \(18,000 |
Less: Interest expenses | 3,000 |
Earning before taxes | \)15,000 |
Less: Taxes (30%) | 4,500 |
Earning after taxes | $10,500 |
*equal income before interest and taxes
The Rogers Corporation has a gross profit of \(880,000 and \)360,000 in depreciation expense. The Evans Corporation also has \(880,000 in gross profit,
with \)60,000 in depreciation expense. Selling and administrative expense is $120,000 for each company. Given that the tax rate is 40 percent, compute the cash flow for both companies.
Explain the difference in cash flow between the two firms.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Exams 
GCSE 
IGCSE 
AS 
A Level 
International A Level 
University Admissions Tests 
Flashcards 
Vaia AI 
Notes 
Study Plans 
Study Sets 
Find a job 
Find a degree 
Student Deals 
Magazine 
Mobile App