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Superior Manufacturing Company: Income Statement

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Complete the following exercise. Fill in the Excel spreadsheet provided via the link below to provide your answers to part a. Then paste the Excel data into a Word document on which you can also write the answer to part b.

income_statement.xlsx

Administrative Expenses........................................................................................

$ 70,000

Finished Goods Inventory January 1, 2011..............................................................

120,000

Cost of Goods Manufactured during the year.........................................................

200,000

Finished Goods Inventory December 31, 2011........................................................

60,000

Selling Expenses....................................................................................................

40,000

Sales......................................................................................................................

680,000

Required:

Using the information for Superior Manufacturing Company, prepare the income statement for the year ended December 31, 2011. (Assume a 30 % income tax.)
Create a report between 200 and 300 words in length for leadership. The topic is the state of this company. Make some suggestions if there are areas you feel need to be further investigated.

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Solution Preview

The first things to consider are the entries for finished goods inventory. These are actually assets, belonging on the Balance Sheet, not the Income Statement. So for purposes of this response, we will not account for these within the Income Statement (possibly placed here to determine if you are able to distinguish the difference?).

So, in order of entry, the following applies:

Sales ----------------------------------------------- $680,000

Less: Cost of Goods sold ------------------------ $200,000

Equals Gross Profit ------------------------------- $480,000

Less: Admin Expenses -------------------------- $ 70,000
Less: Selling Expenses -------------------------- $ 40,000

Equals Earnings Before Interest & Taxes ...

Solution Summary

This analysis is an interpretation and identification of items logically intended to reside within the income statement. It follows the facts presented in the case to the interpretation of the data based upon trends, industry averages, and financial impacts.

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Superior Living, Inc. is a private, domestic U.S. manufacturer of home furniture targeted at U.S. consumers ages 21 to 54 (from first-time apartment renters to empty-nesters). The company generates $250 million in revenues from six product lines: outdoor patio, luxury, durable rental, children's furniture, rare woods, and space saver. The company sells its products through a number of retailers and has a solid business reputation with distributors and customers. Superior Living has divisions for each of the product lines, and each division includes sales, marketing, and manufacturing personnel. The other functional areasâ?"human resources, finance, and information technology-support the entire company. You are the vice president of finance, reporting to the chief financial officer (CFO). Your role includes the responsibility for financial analysis and financial reporting. This includes developing financial statements, monitoring performance metrics, educating the senior officer team on key financial decisions, and valuing new business opportunities that are presented to the board of directors. Superior is looking to go public in the next 6 to 8 months with an initial public offering (IPO). In addition, the company is aggressively pursuing new business opportunities, which may include expansion via acquisition and the development and implementation of new product lines. All of this will require the company to manage its finances extremely well. You are the key officer to lead in this responsibility. The CFO has asked you to meet with her to outline the financial plans for the next 12 months. She needs you to develop the three financial statements for the end of the fiscal year, determine the capital investments required for the upcoming year, develop the operating budget, and outline the plan for the IPO. To do this, you will work closely with the VP of accounting and the head of strategic planning. You know that the next 12 months can determine the long-term success of Superior. The CEO and board of directors have made it clear to you and the CFO that the financial plans for the next year should be based on sound, fundamental financial principles and contain as little risk as possible. Finally, you understand the company very well and know that the division chiefsâ?"the senior vice presidents who lead the product divisions--wield a great deal of power and must agree to financial plans. Many of them have expressed that they will need significant expenditures next year, stating that the "running rate will not be enough," referencing the company's longstanding process of developing expense budgets based on the previous yearâ??s expenditures plus a small percentage increase. Furthermore, they all have stated that if a merger should occur, it should be with a product line that compliments their division and is brought under their control.

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Assume you are organizing your thoughts for the meeting with the VP of Accounting in preparation to meet with the CFO later. Go to the Discussion Board and discuss the following topics, giving examples: (1) how working capital can impact a company's finances; (2) what the company can do to handle short-term debt that is coming due; (3) explain current ratio, discuss its implications, and describe a good current ratio; and (4) describe briefly how businesses make capital budgeting decisions.

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