Use the information below to create (If possible) 3-years of an income statement
ID: 2601610 • Letter: U
Question
Use the information below to create (If possible) 3-years of an income statement and a cash flow statement. Hint: Not all items listed below will appear on these two statements, though they may be necessary to create the statements.
Sales: $1,000,000 in Y1, increasing at 15%/year
Depreciation Expense: $60,000/year (straight-line)
Retained Earnings: $200,000 Y0.
A/P: $70,000 Y1; $50,000 Y2, and $30,000 Y3
CapEx: $70,000/year
COGS: 40% of sales each year
Patents: $50,000
SG&A: 25%of sales Y1, 20% of sales Y2, and 15% of sales Y3
Common Stock: $400,000
Inventory: $50,000 Y1, $100,000 Y2, $300,000 Y3
R&D: $30,000/year
A/R: $10,000 Y1; $25,000 Y2; $50,000 Y3
Notes Payable: $150,000 Y1. No additional financing added in Y2 or Y3
PPE $400,000 Y1, $470,000 Y2, $540,000 Y3
Tax rate 35%
Explanation / Answer
1. Income Statement for three years.
Income Statement
Particulars
Year 1
Year 2
Year 3
Sales
1,000,000
1,150,000
1,322,500
Less: Cost of Goods Sold (40%)
400,000
460,000
529,000
Gross Profit
600,000
690,000
793,500
Less: Depreciation
60,000
60,000
60,000
Less: SG & A
250,000
230,000
198,375
Less: R&D
30,000
30,000
30,000
Operating income before Tax
260,000
370,000
505,125
Less: Tax @ 35%
91,000
129,500
176,794
Net Income
169,000
240,500
328,331
Cash Flow Statement
Particulars
Amount
Total Amount
Cash Flow from Operating Activities
Net Income
328,331
Add: Items for cash basis
Depreciation
60,000
Accounts Receivable (Increase)
(25,000)
Inventory(Increase)
(200,000)
Accounts Payable (Decrease)
(20,000)
Cash Flow provided by operating activities
143,331
Cash Flow from Investing Activates
Capital Expenditure
(70,000)
Cash Used by Investing activity
(70,000)
Cash Flow from Financing Activity
Notes payable
150,000
Cash provided by Financing activities
150,000
Net outflow of Cash
22,3331
Cash at the Beginning of year
NA
Cash at end of year
NA
NOTE: Dear Student, in the given question opening balance of cash & cash equivalents at Year 0 is not given and therefore, cash balance at each year end cannot be calculated. Therefore, the same has been ignored while preparing cash flow statement.
Particulars
Year 1
Year 2
Year 3
Sales
1,000,000
1,150,000
1,322,500
Less: Cost of Goods Sold (40%)
400,000
460,000
529,000
Gross Profit
600,000
690,000
793,500
Less: Depreciation
60,000
60,000
60,000
Less: SG & A
250,000
230,000
198,375
Less: R&D
30,000
30,000
30,000
Operating income before Tax
260,000
370,000
505,125
Less: Tax @ 35%
91,000
129,500
176,794
Net Income
169,000
240,500
328,331
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