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Income Statement

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Gill Bates, Jr. spent $1,000,000 developing a software utility that is intended to be sold to small businesses. In his first full year of business following the development, he sold 50,000 copies at $109 each. The direct cost of packaging, and fulfilling orders for the software was $34 per unit. Overhead costs are 10% of this direct cost.

The largest expense was servicing customers following sales. The following costs were incurred including all equipment which will be replaced annually.
Software Maintenance $300,000
Customer Service $200,000
Marketing & Sales $350,000

Gill and his immediate staff were paid $500,000. Financing was by an Angel investor who received a 35% ownership and one loan of $250,000. Interest only at 8.3% is paid annually on the loan.

Tax rate is 20%.

Prepare an Income Statement for this first year of operation using three year MACRS depreciation.

Note: Software development is depreciable for a product that is sold. See http://www.irs.gov/businesses/small/article/0,,id=137026,00.html

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See Also This Related BrainMass Solution

Vi-Gro Corporation Income Statement, Balance Sheet and Retained Earnings

(See attached file for full problem description)

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Presented below is financial information related to Vi-Gro Corporation for the year 2002. Unless otherwise stated, all balances are ending balances.

Accounts payable $ 874,200
Accounts receivable 1,000,800
Accumulated depreciation- Equipment 1,560.000
Administrative expenses 420,000
Bonds payable 3,400,000
Cash 125,000
Common stock 2,200,000
Cost of goods sold 2,285,000
Dividends 290,000
Equipment 5,894,000
Gain on the sale of land 87,000
Interest expense 108,000
Interest revenue 94,000
Inventories 984,000
Marketable securities (short-term) 1,175,000
Net sales 3,670,000
Notes payable (short-term) 1,136,500
Other long-term debt 401,300
Patents and other intangibles 1,250,100
Prepaid expenses 356,100
Retained earnings (January 1, 2002) 833,000
Selling expenses 368,000

Vi-Gro Corporation had 88,000 shares of common stock outstanding for the entire year. Its effective income tax rate for state and federal income taxes combined is 35 percent.

a. Prepare a multiple -step income statement.
b. Prepare a single-step income statement
c. Prepare a retained earnings statement.
d. Prepare a classified balance sheet.
e. Compute the following balance sheet relationships:

1. current ratio.
2. the amount of working capital
3. debt to total assets ratio.

What insights do these relationships provide to the reader of the financial statements?

f. Compute three measures of profitability. What insights do these relationships provide to the reader of the financial statements?

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