You are a summer intern at the office of a local tax preparer. To test your basic knowledge of financial statements, your manager, who graduated from your alma mater 2 years ago, gives you the following list of accounts and asks you to prepare a simple income statement using those accounts.
Depreciation 25
General and administrative expenses 22
Sales 345
Sales expenses 18
Cost of goods sold 255
Lease expense 4
Interest expense 3
a. Arrange the accounts into a well labeled income statement. Make sure you label and solve for gross profit, operating profit, and net profit before taxes.
b. Using a 35% tax rate, calculate taxes paid and net. profit after taxes.
c. Assuming a dividend of $1.10 per share with 4.25 million shares outstanding, calculate EPS and additions to retained earnings.
E2 2 Explain why the income statement can also be called a “”profit and loss statement.”” What exactly does the word “”balance”” mean in the title of the balance sheet? Why do we balance the two halves?