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Calculate income statement amounts for Tiger Company

Presented below is information related to Tiger Company

Retained earnings 12/31/06 650,000
Sales 1,600,000
Selling and admin expenses 240,000
hurricane loss (pre-tax) on plant (extraordinary item) 250,000
cash dividends declared on common stock 33,600
Cost of goods sold 1,000,000
Gain resulting from computation error on depreciation charge in 2005 (pre-tax) 520,000
Other revenue 60,000
other expenses 50,000

Instructions:

Complete the items below for the year 2007. Assume a 30% tax rate and that 100,000 shares of common stock were outstanding during the year.

gross profit
income from operations
income taxes
extraordinary items
net income

Solution Preview

Gross profit is defined as sales minus cost of goods sold: 1,600,000 - 1,000,000 = 600,000

Income from operations is defined as revenue minus operating expenses: 1,600,000 - (240,000 + 1,000,000) = 360,000

Income tax is computed on "Income before taxes and extraordinary items": (360,000 + 60,000 - 50,000) x 30% = 111,000

Extraordinary item is reported as 250,000 less applicable income tax savings: 250,000 - 30% = 175,000

Net income is 360,000 + 60,000 - 50,000 - 111,000 - 175,000 = 84,000

Note 1: Extraordinary items are ...

Solution Summary

Income Statement for Tiger Company: Calculate amounts for gross profit, income from operations, income tax, extraordinary items and net income. The solution shows all the amounts to arrive at the solution including explanations as required.

$2.19