Question

3. Prepare a classified income statement, for the year 2017 for XYZ manufacturing firm, from the items listed below and answer the following questions:

Accounts payable                                                                                                        6,000

Equipment                                                                                                                 29,000

Revenue (sales)                                                                                                         45,000

              Cost of goods sold                                                                                                                    15,000

Dividends                                                                                                                     6,000

Office building Insurance expense                                                                             3,500

Office Utilities expense                                                                                                  700

               Depreciation expense                                                                                                                 500

Management salaries expense                                                                                   9,000

Accounts receivable                                                                                                  10,000

               Research and development expense                                                                                   2,000

               Advertising expense                                                                                                                 1,000

               Interest Expense                                                                                                                        1,500

               Tax rate                                                                                                                                         30%

1. How much gross profit or loss the company has made during 2017?
2. What is the amount of EBIT (operating profit/loss) during 2017?
3. What is the amount of EBT (earnings before taxes) during 2017?

Answer 1

a. Gross Profit = Sales - Cost of Goods Sold

= 45000-15000 = 30000

b. EBIT = Operating Profit before Interest and Taxes

Or we can say EBT + INTEREST EXPENSE

EBIT = 11800+1500 = 13300

We can also calculate it the other way by deducting Expense incurred in the normal course of business from Gross Profit

c. EBT = Sales - Cost of Goods Sold - All other expenses

= 45000-15000-3500-700-500-9000-2000-1000-1500

= 11800

Classified Income Statement of XYZ Manufacturers for the Year, 2017

Particulars	Amount
Revenues Sales	45000
Less Cost of Goods Sold	15000
Gross Profit	30000
Less Operating Expenses
Office Utilities exp	700
Office Building Insurance	3500
Depreciation Exp	500
Management Salaries Expense	9000
Research & Development Exp	2000
Advertising Expense	1000
Total operating expenses	16700
Operating Income (G.P-Operating Exp) i.e. EBIT	13300
Less Non Operating expense Interest	1500
EBT	11800
Less Taxes	3540
EAT	8260
Less Dividend Paid	6000
Earnings Available for Stockholder's	2260