In this module, you were introduced to the income statement and profitability ra

Question

In this module, you were introduced to the income statement and profitability ratios. In this assignment, you will use this information to create an income statement and then analyze it for profitability. Selected accounts for Jackson, Inc. are listed below along with their balances before closing the year of 12/31/12. Jackson, Inc. is a firm that manufactures wireless mouse systems for laptops. Use this information to complete the required elements below. Interest expense 2,000 Sales revenue 297,000 Selling expenses 38,200 Administrative expenses 16,700 Cost of goods sold 162,300 Dividends1 12,200 Gain on sale of equipment 3,600 Loss from fire 7,500 Retained Earnings (1/1/12 balance) 335,000 Tax expense 22,800 1Dividends were declared and paid to Jackson, Inc. stockholders Required: On a spreadsheet, prepare a multistep income statement for the year ending 12/31/12 with proper heading. See link below for sample income statement. Near the bottom of your income statement should be a subtotal for income before taxes and then you should subtract taxes to compute net income. Net income should have a double underline. On the same spreadsheet, prepare a statement of retained earnings for the year ending 12/31/12 with proper heading. See link below for sample statement of retained earnings. There are no adjustments to retained earnings and ending retained earnings should have a double underline. On the same spreadsheet, compute the gross profit margin, operating income margin, and net profit margin for 2012, showing the numerator and denominator for all ratios. Take ratios out to the nearest hundredth of a percentage (e.g., 33.33%). On the same spreadsheet, write a paragraph analyzing each of the profitability ratios for Jackson, Inc. given the following information from previous years and competitors. Gross profit margin Operating income margin Net profit margin Jackson, 2011 47.22% 26.52% 17.75% Jackson, 2010 48.87% 25.43% 17.03% Competitor, 2012 43.22% 31.20% 21.14%

Explanation / Answer

2012 2011 2010 Sales Revenue 297000 COGS 162300 Gross Profit 134700 Gross Margin 45.35% 47.22 48.87% Gross profit margin has declined citing that customer has not been able to pass price Seeling Expense 38200 Administrative Expense 16700 Operating Profit 79800 Operating Profit Margin 26.87% 26.52% 25.45% Operating profot margin has improved citing there is improvement in effciency Other income(loss) 3900 Interest Income 2000 Taxes 22800 Net Profit 51100 Net Profit Margin 17.21% 17.75% 17.03% Net profot margin has almost rmained same 2012 Competitor Sales Revenue 297000 COGS 162300 Gross Profit 134700 Gross Margin 45.35% 43.22% Competitor has low gross profit margin citing is cost of goods are higher Seeling Expense 38200 Administrative Expense 16700 Operating Profit 79800 Operating Profit Margin 26.87% 31.20% Operating effciencies of competitor has increased Other income(loss) 3900 Interest Income 2000 Taxes 22800 Net Profit 51100 Net Profit Margin 17.21% 21.14% Competitor has low interest expenses leading to higher net profit margin

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