Determining and Interpreting the Effects of Transactions on Income Statement Categories and Return on Assets – Creative Technology, a computer hardware company based in Singapore, developed the modern standard for computer sound cards in the early 1990s. Recently, Creative has released a line of portable audio products to directly compete with Apple’s popular iPod. Presented here is a recent income statement (dollars in millions).
|
Net sales |
$915 |
|
Costs and expenses |
|
|
Cost of sales |
737 |
|
Research and development |
64 |
|
Selling, general, and administrative |
175 |
|
Operating income (loss) |
61 |
|
Interest and other income (expenses), net |
112 |
|
Income (loss) before provision (benefit) for income taxes |
51 |
|
Provision (benefit) for income taxes |
23 |
|
Net income (loss) |
$28 |
Its beginning and ending assets were $393 and $409, respectively.
Required:
Listed here are hypothetical additional transactions. Assuming that they also occurred during the fiscal year, complete the following tabulation, indicating the sign of the effect of each additional transaction ( + for increase, – for decrease, and NE for no effect). Consider each item independently and ignore taxes.
a. Recorded sales on account of $500 and related cost of goods sold of $475.
b. Incurred additional research and development expense of $100, which was paid in cash.
c. Issued additional shares of common stock for $200 cash.
d. Declared and paid dividends of $90.
|
Transaction |
Gross Profit |
Operating |
Return on |