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Income Statements and Vertical Analysis

In 2010, Earthscope Company decided to sell its satellite sales division, even though the division had been profitable during the year. During 2010, the satellite division earned $54,000 and the taxes on that income were $12,500. The division was sold for a gain of $750,000, and the taxes $36,700. How would these amounts be reported on the income statement for the year ended December 31, 2010?

Bessie's Quilting Company reported the following amounts on its balance sheet at December 31, 2010:
Cash $5,000
Accounts receivable, net 40,000
Inventory 35,000
Equipment, net 120,000
Total assets $200,000
Perform a vertical analysis of the assets of Bessie's Quilting Company. Use total assets as the base. What information does the analysis provide?

Solution Summary

In this two-part exercise; (1) it is illustrated how a company's yearly earnings, income tax, and the capital gain resulting from the sale of one of the company's most profitable divisions are to be reported on the firm's income statement, and (2) the conclusions that can be reached from the vertical analysis of financial data taken from the firm's year-end balance sheet.