Question

The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.

Answer 1

Answer:

The Canton Corporation

a. The After-tax income for 2014 is:

= $94,719.

b. The after-tax income increased by 30.93% as a result of a 10% increase in the sale price.

c. The after-tax income for 2015 is:

= $51,530.

Explanation:

a) Data and Calculations:

CANTON CORPORATION

Income Statement for 2013

Sales                                               $340,100 (17,900 units at $19.00)

Cost of goods sold                         205,850 (17,900 units at $11.50)

Gross profit                                    $134,250

Selling and administrative expense 20,406

Depreciation                                       10,500

Operating profit                              $103,344

Taxes (30%)                                         31,003

After-tax income                               $72,341

CANTON CORPORATION

Income Statement for 2014

Sales                                                 $374,110 (17,900 units at $20.90)

Cost of goods sold                          205,850 (17,900 units at $11.50)

Gross profit                                     $168,260

Selling and administrative expense  22,446.60 (6% of sales)

Depreciation                                       10,500

Operating profit                              $135,313.40

Taxes (30%)                                       40,594.02

After-tax income                              $94,719.38

Increase in after-tax income:

After-tax income in 2014 =     $94,719

After-tax income in 2013 =     $72,341

Increase in after-tax income $22,378

Percentage increase = $22,378/$72,341 * 100 = 30.93%

Income Statement for 2015

Sales                                               $317,993.50 (17,900 units at $17.77)

Cost of goods sold                          214,800.00 (17,900 units at $12.00)

Gross profit                                    $103,193.50

Selling and administrative expense  19,079.61 (6% of sales)

Depreciation                                       10,500

Operating profit                               $73,613.89

Taxes (30%)                                       22,084.17

After-tax income                             $51,529.72

After-tax income rounded to the nearest whole dollar = $51,530