Note : The market price of BabyCakes Int’l, Inc. common stock was $20 on Decembe

Question

Note: The market price of BabyCakes Int’l, Inc. common stock was $20 on December 31, 2008.

Complete a horizontal analysis for the Income Statement, and explain your findings.

Complete a vertical analysis for the Income Statement, and explain your findings.

Retained Earnings December 31

$421,000

$375,000

Part A:Complete the calculations for the 19 items listed below.

Determine the following measures for the year 2008

Baby Cakes International Inc Statement of Retained Earnings for the Years ended December 31, 2008 and 2007 December 31, 2008 December 31, 2007 Retained Earnings, January 1 $375,000 $327,000 Net income for year 68,000 67,000 Total $443,000 $394,000 Dividends Paid          Preferred Stock $15,000 $12,000          Common Stock 7,000 7,000                     Total Dividends Paid $22,000 $19,000

Retained Earnings December 31

$421,000

$375,000

Explanation / Answer

Ans 2

Details 2,008 2,007 Increase 2008 % increase(Decrease) Net Sales 10,50,000 9,60,000 90,000 9% Cost of Goods Sold 4,00,000 3,90,000 10,000 3% Gross Profit 6,50,000 5,70,000 80,000 14% 0 Selling Expenses 2,70,000 2,75,000 -5,000 -2% Administrative Expenses 1,95,000 1,65,000 30,000 18% Total operating expenses 4,65,000 4,40,000 25,000 6% 0 Income from Operations 1,85,000 1,30,000 55,000 42% 0 Other income 20,000 15,000 5,000 33% Other expense 96,000 48,000 48,000 100% 0 Income before Tax 1,09,000 97,000 12,000 12% 0 Income Tax Expense 41,000 30,000 11,000 37% NET INCOME 68,000 67,000 1,000 1% Findings 1.Sales has grown 9% whereas COGS has only increased by 3% resulting in a higher Gross profit % of 14% 2.Seems company is able to leverage the use of fixed cost to leverage the operating income.

Ans 2

Details 2,008 as a % of sales Net Sales 10,50,000 100% Cost of Goods Sold 4,00,000 38% Gross Profit 6,50,000 62% Selling Expenses 2,70,000 26% Administrative Expenses 1,95,000 19% Total operating expenses 4,65,000 44% Income from Operations 1,85,000 18% Other income 20,000 2% Other expense 96,000 9% Income before Tax 1,09,000 10% Income Tax Expense 41,000 4% NET INCOME 68,000 6%

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