Provo Water Products had sales during 2012 of $895,000. Provo\'s gross profit pe

Question

Provo Water Products had sales during 2012 of $895,000. Provo's gross profit percentage is 55 percent, Purchases of inventory during 2012 totaled $466,250 and a count of inventory on hand ar the end of the year totaled $189,500. Selling expenses are 18 percent of sales and general and administrative expenses are equal to 80 percent of selling expenses. Provo's income tax rate is 30 percent and the company has 60,000 shares of common stock outstanding.

Prepare an income statement, including earnings per share data, for the year ended December 31, 2012.

Sales........................................

Cost of goods sold:

Beginning inventory................................$126,000 Purchases..............................................$466,250 Goods available for sales.....................$189,500

Less ending inventory

Cost of goods sold

Gross margin 55% of sales..................

Expenses:

Selling expenses ...... 18% of sales.............

General & admin. expenses 80% of selling exp.

Operating income.............................................

Income tax expense 30% of operating income........................

Net income..........................................................

Earnings per commonn share

( $ _____________/ 60,000 shares)........................................

Explanation / Answer

  Income statement

Sales = $895000

Less: Cost of goods sold :

opening inventory $126000

purchase $466250

Cost of goods available for sale $599250

less: Closing stock $189500 = $402750

  Gross profit (55% * $895000) = $492250

less: Selling Expenses ( 18% * $895000) = $161100

less: General & Administrative expenses(80% * $161100) = $128880

Operating Income = $202270

Less:Income tax Expenses(30% * $202270) =$ 60681

   Net Income = $141589

Earning per share ($141589 / 60000 shares) = $2.36

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