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    Income Statement and Computing Earnings per Share

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    9. Prepare in good form an income statement for Virginia Slim Wear. Take your calculations all the way to computing earnings per share.

    Sales ........................................................................................................... $ 600,000
    Shares outstanding .................................................................................... 100,000
    Cost of goods sold ..................................................................................... 200,000
    Interest expense ......................................................................................... 30,000
    Selling and administrative expense ............................................................ 40,000
    Depreciation expense ................................................................................. 20,000
    Preferred stock dividends .......................................................................... 80,000
    Taxes .......................................................................................................... 100,000

    22. Coastal Pipeline, Inc., anticipated cash flow from operating activities of $ 8 million in 2010. It will need to spend $ 1.5 million on capital investments in order to remain competitive within the industry. Common stock dividends are projected at $. 6 million and preferred stock dividends at $. 25 million.

    a. What is the firm's projected free cash flow for the year 2010?
    b. What does the concept of free cash flow represent?

    Do not solve highlighted information, just use as reference for answering 29, 30, 31, and 32:

    28. Prepare a statement of cash flows for the Jeter Corporation

    JETER CORPORATION
    Income Statement
    For the Year Ended December 31, 2010
    Sales .......................................................................... $ 3,300,000
    Cost of goods sold ..................................................... 1,950,000
    Gross profits .............................................................. 1,350,000
    Selling and administrative expense .......................... 650,000
    Depreciation expense ...............................................230,000
    Operating income .................................................... 470,000
    Interest expense ...................................................... 80,000
    Earnings before taxes ..............................................390,000
    Taxes ......................................................................140,000
    Earnings after taxes ...............................................250,000
    Preferred stock dividends .......................................10,000
    Earnings available to common stockholders ...........$ 240,000
    Shares outstanding .................................................150,000
    Earnings per share .................................................. $ 1.60

    Statement of Retained Earnings
    For the Year Ended December 31, 2010
    Retained earnings, balance, January 1, 2010 ............................................. $ 800,000
    Add: Earnings available to common stockholders, 2010 ........................ 240,000
    Deduct: Cash dividends declared and paid in 2010 ................................ 140,000
    Retained earnings, balance, December 31, 2010 ....................................... $ 900,000

    Comparative Balance Sheets For 2009 and 2010

    Year- End 2009 Year- End 2010

    Assets Current assets:
    Cash .................................................................. $ 100,000 $ 120,000
    Accounts receivable ( net) .................................. 500,000 510,000
    Inventory ........................................................... 610,000 640,000
    Prepaid expenses ............................................. 60,000 30,000
    Total current assets ....................................... 1,270,000 1,300,000
    Investments ( long- term securities) .................... 90,000 80,000
    Plant and equipment ......................................... 2,000,000 2,600,000
    Less: Accumulated depreciation ...................... 1,000,000 1,230,000
    Net plant and equipment .................................. 1,000,000 1,370,000
    Total assets ................................................... $ 2,360,000 $ 2,750,000

    Liabilities and Stockholders' Equity
    Current liabilities:
    Accounts payable ............................................. $ 300,000 $ 550,000
    Notes payable ................................................... 500,000 500,000
    Accrued expenses ............................................ 70,000 50,000
    Total current liabilities .................................... 870,000 1,100,000

    Long- term liabilities:
    Bonds payable, 2015 ........................................ 100,000 160,000
    Total liabilities ................................................ 970,000 1,260,000

    Stockholders' equity:
    Preferred stock, $ 100 par value ........................ 90,000 90,000
    Common stock, $ 1 par value ............................ 150,000 150,000
    Capital paid in excess of par ............................ 350,000 350,000
    Retained earnings ............................................. 800,000 900,000
    Total stockholders' equity ............................. 1,390,000 1,490,000
    Total liabilities and stockholders' equity ....... $ 2,360,000 $ 2,750,000

    (The following questions apply to the Jetter Corporation above, as presented in Problem 28.)

    29. Describe the general relationship between net income and net cash flows from operating activities for the firm.

    30. Has the buildup in plant and equipment been financed in a satisfactory manner? Briefly discuss.

    31. Compute the book value per common share for both 2009 and 2010 for the Jeter Corporation.

    32. If the market value of a share of common stock is 3.1 times book value for 2010, what is the firm's P/ E ratio for 2010? (Round to the nearest whole number).

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    Solution Preview

    Virginia Slim Wear
    Income statement

    Sales $600,000
    Cost of goods sold $200,000
    Gross profit $400,000 ...

    Solution Summary

    The solution provides an income statement and computing earnings per share.

    $2.19

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