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    11&27 Fin 201 PDF

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    Bopha vong
    Stein Books sold 1,400 textbooks for $195 each, earning $273,000 in sales. Their costs were $210,000 and expenses were $12,000 and $15,000, giving an operating profit of $36,000. After paying $10,000 in interest and $7,800 in taxes, Stein Books earned a profit of $18,200. The income statement shows Stein Books did make a profit in 2010.

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    11&27 Fin 201 PDF

    Uploaded by

    Bopha vong
    90 views3 pages
    Stein Books sold 1,400 textbooks for $195 each, earning $273,000 in sales. Their costs were $210,000 and expenses were $12,000 and $15,000, giving an operating profit of $36,000. After paying $10,000 in interest and $7,800 in taxes, Stein Books earned a profit of $18,200. The income statement shows Stein Books did make a profit in 2010.

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    Stein Books sold 1,400 textbooks for $195 each, earning $273,000 in sales. Their costs were $210,000 and expenses were $12,000 and $15,000, giving an operating profit of $36,000. After paying $10,000 in interest and $7,800 in taxes, Stein Books earned a profit of $18,200. The income statement shows Stein Books did make a profit in 2010.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    90 views3 pages

    11&27 Fin 201 PDF

    Uploaded by

    Bopha vong
    Stein Books sold 1,400 textbooks for $195 each, earning $273,000 in sales. Their costs were $210,000 and expenses were $12,000 and $15,000, giving an operating profit of $36,000. After paying $10,000 in interest and $7,800 in taxes, Stein Books earned a profit of $18,200. The income statement shows Stein Books did make a profit in 2010.

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    Name: VONG BOPHA DATE: 01 – April - 2020

    ID: 60-170603
    Course: FIN 201 (803)
    Session: evening HOMEWORK

    11. Stein Books, Inc. sold 1,400 finance textbooks for $195 each to High Tuition University in
    2010. These books cost $150 to produce. Stein Books spent $12,000 (selling expense) to convince
    the university to buy its books.
    Depreciation expense for the year was $15,000. In addition, Stein Books borrowed
    $100,000 on January 1, 2010, on which the company paid 10 percent interest. Both the
    interest and principal of the loan were paid on December 31, 2010. The publishing firm’s
    tax rate is 30 percent.
    Did Stein Books make a profit in 2010? Please verify with an income statement
    presented in good form.

    Solution:
    Stein Books, Inc.
    Income Statement
    For the Year Ending December 31, 2010
    Account USD

    Sales (1,400 books at $195 each) ………………………………….... $ 273,000


    Cost of goods sold (1,400 books at $150 each) ……………………… $ 210,000
    Gross Profit …………………………………………………… $ 63,000
    Selling expense ………………………………………………………. $ 12,000
    Depreciation expense …………………………………………………. $ 15,000
    Operating Profit (EBIT) ……………………………………… $ 36,000
    Interest expense ($100,000 x 10%) …………………………………… $ 10,000
    Earnings before taxes (EBT) …………………………………. $ 26,000
    Taxes 30% ……………………………………………………………. $ 7,800
    Earnings after taxes (EAT) …………………………………… $ 18,200

    27. For December 31, 2009, the balance sheet of Baxter Corporation was as follows:
    ________________________________________________________________________
    Current Assets Liabilities
    Cash............................................. $ 10,000 Accounts payable ................ $ 12,000
    Accounts receivable ..................... 15,000 Notes payable.......................... 20,000
    Inventory........................................ 25,000 Bonds payable......................... 50,000
    Prepaid expenses........................... 12,000
    Fixed Assets Stockholders’ Equity
    Plant and equipment (gross).... $250,000 Preferred stock ...................... 20,000
    Less: Accumulated................... Common stock ....................... 55,000
    depreciation................................ 50,000 Paid-in capital ........................ 25,000
    Net plant and equipment ........... 200,000 Retained earnings .................. 80,000
    .................................................................... Total liabilities and
    Total Assets................................ $262,000 stockholders’ equity............ $262,000
    _________________________________________________________________________
    Sales for 2010 were $220,000, and the cost of goods sold was 60 percent of sales. Selling
    and administrative expense was $22,000. Depreciation expense was 8 percent of plant and
    equipment (gross) at the beginning of the year. Interest expense for the notes payable was
    10 percent, while the interest rate on the bonds payable was 12 percent. This interest
    expense is based on December 31, 2009 balances. The tax rate averaged 20 percent.
    Two thousand dollars in preferred stock dividends were paid and $8,400 in dividends
    were paid to common stockholders. There were 10,000 shares of common stock outstanding.
    During 2010, the cash balance and prepaid expenses balances were unchanged.
    Accounts receivable and inventory increased by 10 percent. A new machine was
    purchased on December 31, 2010, at a cost of $35,000.
    Accounts payable increased by 25 percent. Notes payable increased by $6,000 and bonds
    payable decreased by $10,000, both at the end of the year. The preferred stock, common stock,
    and paid-in capital in excess of par accounts did not change.

    a. Prepare an income statement for 2010.


    b. Prepare a statement of retained earnings for 2010.
    c. Prepare a balance sheet as of December 31, 2010.

    Solution:

    a. Prepare an income statement for 2010.

    Baxter Corporation
    Income Statement
    As at 31 December 2010

    Accounts USD

    Sales ……………………………………………………………………… $ 220,000


    Cost of goods sold (60%) ………………………………………………… $ 132,000
    Gross profit ………………………………………………………. $ 88,000
    Selling and administrative expense ………………………………………. $ 22,000
    Depreciation expense (8%) ………………………………………………. $ 20,000
    Operating profit (EBIT) ………………………………………….. $ 46,000
    Interest expense ………………………………………………………….. $ 8,000
    Earnings after taxes (EBT) ……………………………………….. $ 38,000
    Taxes (20%) ……………………………………………………………… $ 7,600
    Earnings after taxes (EAT) ………………………………………. $ 30,400
    Preferred stock dividends ………………………………………………… $ 2,000
    Earnings available to common stockholders ……………………………… $ 28,400
    Shares outstanding ………………………………………………………… $ 10,000
    $ 28,400
    Earnings per share ……………………………………………… $ 2.84
    $ 10,000
    b. Prepare a statement of retained earnings for 2010.

    Baxter Corporation
    Statement of Retained Earning
    As at 31 December 2010

    Accounts USD

    Retained earnings balance, January 1, 2010 …………………..………… $ 80,000


    Add: Earnings available to common stockholders, 2010………… $ 28,000
    Less: Cash dividend declared in 2010 ……………………………. $ 8,000
    Retained earnings balance, December 31, 2010 ………….………………. $ 100,000

    c. Prepare a balance sheet as of December 31, 2010.

    Baxter Corporation
    Balance Sheet
    As at 31 December 2010

    Current Assets Liabilities

    Cash……………………. $ 10,000 Accounts payable ………………. $ 15,000


    Accounts receivable……. $ 16,500 Notes payable …………………... $ 26,000
    Inventory ………………. $ 27,500 Bonds payable ………………….. $ 40,000
    Prepaid expense ….……. $ 12,000

    Fixed Assets Stockholders’ Equity

    Gross plant ……………. $ 285,000 Common stock …….……………. $112,000


    Less: Accumulate
    depreciation……... $ 75,000 Paid in capital …………………... $ 37,500
    Net plant and assets …... $ 300,000 Retained Earning ……………….. $118,000
    Total liabilities
    Total asset ……….……. $ 393,000 and Stockholders’ Equity ….. $393,000

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