Duchess Company's records show the following account balances at December 31,2018 Sales 19,000,000 Cost of Goods...

Duchess Company's records show the following account balances at December 31,2018

Sales 19,000,000

Cost of Goods Sold 11,000,000

General an administrative expenses 1,200,000

Selling Expenses 700,000

Interest expense 900,000

Income tax has not yet been determined. The following events also occurred during 2018. All transactions are material in amount.

1. 500,000 in restructuring costs were incurred in connection with plant closings.

2. Inventory costing 600,000 was written off as obsolete. Material losses of this type are considered to be unusual.

3. The company experienced a negative foreign currency translation adjustment of 400,000 and had unrealized gain investments of 380,000.

Required: Prepare a single, continuous multiple-step statement of comprehensive income for 2018. The company's effective tax rate on all items affecting comprehensive income is 40%. Each component of other comprehensive income should be displayed net of tax. Calculate earnings per share if there were 1,000,000 shares outstanding at January 1, 2018 and 400,000 additional shares were issued in July 2018.

Calculate the times earned interest ratio(amounts to be deducted should be indicated with a minus sign)

Expert Solution

Statement of P&L a/c for the year ended 31.12.2018

Sales	19000000
Cost of sales	-11000000
Selling expenses	-700000
General administrative expenses	-1200000
Finance cost - Interest	-900000
Profit before tax (A)	5200000
Income tax expenses @ 40% (B)	-2080000
Profit from continuing operation C=(A-B)	3120000

Statement of Other Comprehensive Income for the year ended 31.12.2018

Profit for the year (I)	3120000
Other comprehensive income
Inventory written off	-600000
Negative Foreign Currency Transalation	-400000
Unrealised Gain Investment	380000
Other comprehensive income (II)	-620000

Total Comprehensive Income of the year (I+II)	2500000

Calculation of EPS
Net Income / Weighted share Outstanding

Weighted shares outstanding
n= 10,00,000 + 4,00,000 x ( 6/12)
n= 12,00,000
EPS = 25,00,000 / 12,00,000
= 2.083

calculation of Times Earned Interest Ratio

= EBIT / Interest
EBIT = Profit before tax + Interest
= 52,00,000 + 9,00,000
= 61,00,000

Ratio = 61,00,000 / 9,00,000
= 6.778 times

ekkarill92 answered 1 month ago

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