electro wizard company ElectroWizard Company produces a popular video game calle

ID: 2728574 • Letter: E

Question

electro wizard company ElectroWizard Company produces a popular video game called Destructo which sells for $32. Last year ElectroWizard sold 50,000 Destructo games, each of which costs $6 to produce. ElectroWizard incurred selling and administrative expenses of $80,000 and depreciation expense of $ 10,000. In addition, ElectroWizard has a $ 100,000 loan outstanding at 12%. Their tax rate is 40%. There are 100,000 common shares outstanding. Prepare an income statement for ElectroWizard in good form (include EPS).

Explanation / Answer

Electro Wizard Company

Income Statement

Sales Revenue (50000 Units * $32)

$ 1,600,000

Less: Cost of Goods sold (50000 Units * $6)

$ (300,000)

Gross Margin

$ 1,300,000

Less: Selling and administrative expenses

$ (80,000)

Profit before interest and taxes

$ 1,220,000

Less: interest expenses (100,000 * 12%)

$ (12,000)

Profit before taxes

$ 1,208,000

Less: Taxes (1208000*40%)

$ (483,200)

Net profit

$ 724,800

Outstanding number of shares

100,000

Enaring per share = (724800/100000)

$ 7.25