Last year, Davies Inc. had sales of $405,000, with a cost of goods sold of $111,
ID: 2346096 • Letter: L
Question
Last year, Davies Inc. had sales of $405,000, with a cost of goods sold of $111,000. The firm's operating expenses were $125,000, and its increase in retained earnings was $54,000. There are currently 21,000 common stock shares outstanding and the firm pays a $1.56 dividend per share. Assuming the firm's earnings are taxed at 34 percent, construct the firm's income statement. Compute the firm's operating profit margin. What was the times interest earned? Assuming the firm's earnings are taxed at 34 percent, construct the firm's income statement.Explanation / Answer
dividends = 21,000*1.56 = 32760 increase in RE = 54,000 net income = 32760 + 54000 = 86,760 income before taxes = 86760/(1-.34) = 131,454.55 taxes = 131,454.55 - 86760 = 44694.55 interest expense = 169,000 - 131,454.55 = 37,545.45 a. interest expense = 37,545.45 income before taxes = 131,454.55 taxes = 44694.55 net income = 86760 b. operating profit margin = 169,000/405,000 = 0.417 or 41.7% c. Times interest earned = income before interest expense and taxes/interest expense = 169,000/37,545.45 = 4.50
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