You are a summer intem at the ofice of a local tax preparer To test your baskc k

ID: 1172160 • Letter: Y

Question

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Explanation / Answer

NOTE: The picture is not very clear, but I have solved the question with the numbers in the way they are visible. Please let me know if this is correct or if some number is incorrect and I can re-correct that.

a) This is how the income statement would look like:

Sales

344.26

Cost of Goods Sold

225.24

Gross Profit

119.02

=Sales - COGS

General & Admin Expenses

22.67

Sales Expense

17.05

Depreciation Expense

25.76

Lease Expense

4.16

Operating Profit (EBIT)

49.38

=Gross Profit - All Expenses

Interest Expense

2.01

Profit before tax

47.37

=EBIT - Interest Expense

b) Tax rate = 35%

Tax Payable = 35% * Net profit before tax = 35% * $47.37 mil = $16,579,500 ($16.60 mil)

Net profit after tax = Profit before tax - Tax Expense = $30,790,500 ($30.79 mil)

c) Earnings per Share = Net Income/No of Shares outstanding

EPS = $30.79 mil/4.29 mil = $7.18 per share

Retained Earnings/Share = EPS - Dividend per Share = $7.18 - $$1.16 = $6.02 per share

Total retained earnings = $6.02 * 4.29mil = $25.81 mil ($25,814,100)