Question 2 [Calculation-based]: The Income Statement

Question 2 [Calculation-based]: The Income Statement [Chapter 3 Study Questions 3.2 and Study Problems 3.1, 3.2, 3.3]

(Refer to Example on page 46 of Textbook)

Construct an Income Statement. Use an Excel spreadsheet and/or tables to present your work. Show all workings.

Mark

Part 1

At the end of its third year of operations, the Sandifer Manufacturing Company had:

· $4,500,000 in revenue;

· $3,375,000 in cost of goods sold;

· $450,000 in operating expenses, which included a depreciation expense of $150,000;

· a tax liability equal to 30% of the firm’s taxable income.

a. Construct an Income Statement with the above data.

b. What is the net profit of the firm for the year?

c. Explain how net profit differs from gross profit and operating profit?

d. Analyse the data and outcome. What information can we derive from Sandifer’s Income Statement?

15 Marks

Part 2

Continued from Part 1: Sandifer Manufacturing Company (from the previous problem) plans to reinvest $50,000 of its earnings back in the firm.

How much profit is left for the payment of a cash dividend to Sandifer’s shareholders?

Criteria	Measures of Excellence	HD	D	C	P	US	F
Content / Knowledge	There is an excellent standard of analysis and the responses demonstrate an accurate appreciation of the key concepts, principles and / or formulae.	5	4	3	2	1	0
Evidence / Support / Referencing	The source of formulae, examples, figures and tables have been appropriately referenced. Referencing accurate – per APA Reference Guide.	5	4	3	2	1	0
Presentation	Responses have been presented in a superior manner i.e comparisons, tables, and figures are neat, separators have been used to present numbers, workings are shown in a clear manner, headings have been used to categorise elements of the answers. Correct grammar, spelling and punctuation.	5	4	3	2	1	0