Question

Prepare an income statement and a common size income statement from the following information. Sales $525,000.00 Cost of goods sold $200,000.00 General and administrative expenses $62,000.00 Depreciation $8,000.00 Interest expense $12,000.00Income taxes $97,200.00

Answer 1

Answer:

Net Income for the year is $145,800 (28% as percentage of Sales)

Explanation:

                                                                     Income              Common Size  

                                                                   Statement        Income Statement

Sales Revenue                                       $525,000            100%

Less: Cost of Goods Sold                       $(200,000)            38%

Gross Profit                                                $325,000              62%

 

Less expenses:  

General & Administrative Expenses         $(62,000)            12%

Depreciation                                                 $(8,000)                     2%

 

Earnings before Interest & Taxes (EBIT)     $255,000              49%  

Less: Interest Expense                                  $(12,000)              2%  

Earnings before Tax (EBT)                           $243,000              46%  

Less: Income Tax Expense                          $(97,200)            19%    

Net Income                                                   $145,800             28%

Common Size income statement is the one where each line item of the company's income statement is expressed as percentage of Sales Revenue.

Please note that:

• Figures in brackets represent negative figures
• Solution to the question is also attached in Excel format for your reference

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