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Income Statements and Profitability Ratios

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In this assignment, you will use this information to create an income statement and then analyze it for profitability. Selected accounts for Jackson, Inc. are listed below along with their balances before closing the year of 12/31/12. Jackson, Inc. is a firm that manufactures wireless mouse systems for laptops. Use this information to complete the required elements below.
Interest expense $ 2,000
Sales revenue 297,000
Selling expenses 38,200

Administrative expenses 16,700
Cost of goods sold 162,300
Dividends1 12,200

Gain on sale of equipment 3,600
Loss from fire 7,500
Retained Earnings (1/1/12 balance) 335,000
Tax expense 22,800

The current syllabus cites a previous edition of the textbook. The attached update is correct for winter and spring—all current and upcoming terms.

1Dividends were declared and paid to Jackson, Inc. stockholders

Required:

On a spreadsheet, prepare a multistep Income Statement for the year ending 12/31/12 with proper heading. See link below for sample income statement. Near the bottom of your income statement should have a subtotal for Income before taxes and then subtract taxes to compute Net income. Net income should have a double underline.
On the same spreadsheet, prepare a Statement of Retained Earnings for the year ending 12/31/12 with proper heading. See link below for sample statement of retained earnings. There are no adjustments to retained earnings and ending retained earnings should have a double underline.
On the same spreadsheet, compute the gross profit margin, operating income margin, and net profit margin for 2012, showing the numerator and denominator for all ratios. Take ratios out to the nearest hundredth of a percentage (e.g., 33.33%).
On the same spreadsheet, write a paragraph analyzing each of the profitability ratios for Jackson, Inc. given the following information from previous years and competitors.

Gross profit margin Operating income margin Net profit margin
Jackson, 2011 47.22% 26.52% 17.75%
Jackson, 2010 48.87% 25.43% 17.03%
Competitor, 2012 43.22% 31.20% 21.14%

The following links provide sample formatting for income statements and statements of retained earnings.

http://www.accountingcoach.com/online-accounting-course/04Xpg04.html#income-statement-multiple-step

http://accountingexplained.com/financial/statements/retained-earnings-statement

Submit your spreadsheet

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Solution Preview

Hello,
You will find in attachment a dynamic Excel file showing the given date in one sheet and the suggested solution in the second one.
Given data are organized in such ...

Solution Summary

Solution is prepared using a dynamic Excel file. Given data are organized in such way they could be directly used to build the required financial statements. Income statement is prepared under multistep method. Subtotals are shown clearly. The retained earnings statement is also presented. Computation of profitability ratios is done using a matrix shown numerators, denominators and detailed calculation. All amounts are calculated using Excel formula so that you can see where numbers come from. The spreadsheet provides also profitability cross company and trend analysis.

$2.19
See Also This Related BrainMass Solution

The Corrigan Corporation's 2004 and 2005 financial statements follow, along with some industry average ratios.

Ratio analysis.
The Corrigan Corporation's 2004 and 2005 financial statements follow, along with some industry average ratios.
A.Assess Corrigan's liquidity position, and determine how it compares with peers and how the liquidity position has changed over time.
B.Assess Corrigan's asset management position, and determine how it compares with peers and how its asset management efficiency has changed over time.
C.Assess Corrigan's debit management position, and determine how it compares with peers and how its debt management has changed over time

D.Asses Corrigan's profitability ratios, and determine how they compare with peers and how the profitability position has changed over time.
E.Assess Corrigan's market value ratios, and determine how their valuation compares with peers and how it has changed over time.
F.Calculate Corrigan's ROE, as well as the industry average ROE, using the extended Du Pont Equation. From this analysis, how does Corrigan's financial position compare with the industry average numbers?
G.What do you think would happen to its ratios if the company initiated cost-cutting measures that allowed it to hold lower levels of inventory and substantially decreased the cost goods sold? No calculations are necessary. Think about which ratios would be affected by changes in these two accounts.

Corrigan Corporation: Balance Sheets as of December 31
2005 2004
Cash $72,00 $65,00
Accounts receivable 439,000 328,000
Inventories 894,000 813,000
Total current assets $1,405,000 $1,206,000
Land and building 238,000 271,000
Machinery 132,000 133,000
Other fixed assets 61,000 57,000
Total assets $1,836,000 $1,667,000
Accounts and notes payable 432,000 409,500
Accrued liabilities 170,000 162,000
Total current liabilities $602,000 $571,500
Long-term debt 404,290 258,898
Common stock 575,000 575,000
Retained earnings 254,710 261,602
Total liabilities and equity $1,836,000 $1,667,000

Corrigan Corporation: Income Statements for year ending December 31

2005 2004
Sales $4,240,000 $3,635,000
Cost of goods sold 3,680,000 2,980,000
Gross operating profit $560,000 $655,000
General administrative and selling expenses 236,320 213,550
Depreciation 159,000 154,500
Miscellaneous 134,000 127,000
Earnings before taxes (EBT) 30,680 159,950
Taxes (40%) 12,272 63,980
Net income 18,408 95,970

Per share data
2005 2004
EPS $0.80 $4.17
Cash dividends $1.10 $0.95
Market price (average) $12.34 $23.57
P/E ratio 15.4x 5.65x
Number of shares outstanding 23,000 23,000

Industry financial ratios*
2.7x
Inventory turnover* 7.0x
Days sales outstanding* 32 days
Fixed assets turnover* 13.0x
Total assets turnover* 2.6x
Return on assets 9.1%
Return on equity 18.2%
Debt ratio 50.0%
Profit margin on sales 3.5%
P/E ratio 6.0x
Price/cash flow ratio 3.5x

*(industry financial ratio)-Industry average ratios have been constant for the past 4 years
*(Inventory turnover, fixed assets turnover and total assets turnover)-based on year-end balance sheet figures
*(Days sales outstanding)- Calculation is based on a 365-day year

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