1.) (Working with an Income statement) At the end of its third year of operation

Question

1.) (Working with an Income statement) At the end of its third year of operations, the August Manufacturing Co. had $4,500,000 in revenues; $3,375,000 in cost of goods sold; $450,000 in operating expenses, which included depreciation expense of $150,000; and had a tax liability equal to 35 percent of the firm’s taxable income. What is the net income of the firm for the year?

2. (Working with the balance sheet) The Flower Seed Company grows heirloom tomatoes and sells their seeds. The heirloom tomato plants are preferred by many growers for their superior flavor. At the end of the most recent year the firm had current assets of $50,000, net fixed assets of $250,000, current liabilities of $30,000, and long-term debt of $100,000.

Calculate Flower’s stockholders’ equity.

What is the firm’s net working capital?

If Flower’s current liabilities consist of $20,000 in accounts payable and $10,000 in short-term debt (notes payable), what is the firm’s net working capital?

*Work must be in a word document or on an excel spreadsheet.

**Must show steps taken to solve for answer.

Explanation / Answer

Solution for 1

Revenues = 4500000

Cost of Goods Sold = 3375000

Operating Expense (including Depreciation) = 450000

So, Taxable Income = Revenues - Cost of Goods Sold - Operating Expense (including Depreciation)
= 4500000 - 3375000 - 450000 = 675000

Tax Liability @ 35% = Taxable Income * 35% = 675000 * 35% = 236250

So, Net Income = Taxable Income - Tax Liability = 675000 - 236250 = 438750

Solution for 2

Net Fixed Asset = 250000

Current Assets = 50000

So, Total Assets = Net Fixed Assets + Current Assets = 250000 + 50000 = 300000

Current Liability = 30000

Long term debt = 100000

So, Total Liabilities = Current Liability + Long term debt = 30000 + 100000 = 130000

We know, Total Assets = Total Liabilities + Stockholders' equity

So, 300000 = 130000 + Stockholders' equity

So, Stockholders' equity = 170000

Out of 30000 current liability, accounts payable = 20000 & notes payable = 10000

Net Working Capital = Current Assets - Current Liabilities (less notes payable)

So, Net Working Capital = 50000 - 20000 = 30000

* Hope it helps. If you need any clarification, please mention in the comments.

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