Question

USE THE FOLLOWING INFORMATION TO CONSTRUCT AN INCOME STATEMENT AND BALANCE SHEET FOR 2011. ASSUME THE TAX RATE IS 40%. (COMMON EQUITY IS A PLUG IN NUMBER)

ITEM	2010	2011
SALES	10,000	12,000
DEPRECIATION	3,000	3,000
COST OF GOODS SOLD	2,000	2,000
OTHER EXPENSES	3,000	4,000
INTEREST	1,000	1,000
CASH	1,000	1,000
ACCOUNTS RECEIVABLE	3,000	3,000
S.T. NOTES PAYABLE	1,000	1,000
L.T. DEBT	10,000	11,000
NET FIXED ASSETS	20,000	20,000
ACCOUNTS PAYABLE	2,000	2,000
INVENTORY	3,000	3,000
DIVIDENDS	600	600

CALCULATE THE FIRM'S NET INCOME FOR 2011.

A. 1,200

B. 2,000

C. 3,600

D. 600

E. 800

Answer 1

Income Statement

for the year ended --------,2011

Sales		12,000
Less:	Cost of goods sold	2,000
Gross profit		10,000
Less:	other operating expenses	4,000
	Depreciation	3,000
	Interest	1,000
Income Before Income Tax		2,000
Less: Income Tax@ 40%		800
Net Income for the year		1,200
Less: Dividend		600
Retained Earnings		600

NET INCOME = 1,200 (Option A)

Balance Sheet

As of -------------,2011

Current Assets:		Current Liabilities:
Cash	1,000	Accounts Payable	2,000
Accounts Receivable	3,000	S.T notes Payable	1,000
Inventory	3,000	Total Current Liabilities	3,000
Total Current Assets	7,000
		Long - Term Liabilities:
Long - Term Assets:		L.T.Debt	11,000
Net Fixed Assets	20,000	Total Long - Term Liabilities	11,000
Total Long - Term Assets	20,000
		Equity (Bal. Fig.)	13,000
Total Assets	27,000	Total Liabilities & Equity	27,000