The following information applies to the questions displayed below Gerrard Const

Question

The following information applies to the questions displayed below Gerrard Construction Co. is an excavation contractor. The following summarized date (in thousands) are taken from the December 31, 2016, financial statements: For the Year Ended December 31, 2016: Net revenues Cost of services provided Depreciation expense Operating income Interest expense Income tax expense Net income At December 31, 2016: Assets Cash and short-term investments Accounts receivable, net Property, plant, and equipment, net Total asscts $64.100 22.800 13,000 28,600 7600 6,400 14,600 $5,600 9,600 154,800 $180,000 Llabiltles and Stockholders' Equity Accounts payable Income taxes payable Notes payable (long term) Paid-in capital Retained earnings Total liabilities and stockholdlers' equity $3000 3,200 95.000 0,000 58,800 $180,000 At December 31, 2015, total assets were $164,000 and total stockholders' equity was $65,20O. There were no changes in notes payable or paid-in capital during 2016

Explanation / Answer

Gerrard Co. has a huge amount of investment in assets as seen by the the investment of $154800 in property, plant and equipment. Depreciation amount is a percentage of the asset amount. Thus, higher the investment in assets, higher shall be the depreciation.Thus, depreciation expense is high because Gerrard Co. is a highly capital intensive firm.

Gerrard Co. has a huge amount of debt as represented by the $95000 notes payable(lon-term). Interest expense shall be higher if there is a huge amount of debt. Thus, interest expense is high because the firm has a large amount of long-term debt.

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