Easley-O'Hara Office Equipment sells furniture and technology solutions to consumers and to businesses. Most consumers pay for cheir purchases with credit cards and business customers make purchases on open account with terms 1/10, net 30. Costs of furniture nventory purchases have generally been rising and costs of computer Inventory purchases have generally been declining. The Company's Income tax rate is 20 percent Casey Easley, the general manager, was particularly Interested in the financial statement effects of the following facts related to first quarter operations. a. Credit card sales (discount 2 percent) were $39,000. b. Sales on account were $116,000. The company expects one-half of the accounts to be paid within the discount period. c. The company computed cost of goods sold for the transactions in (a) and (b) above under FIFO and LIFO for its two product lines and chose the method for each product that minimizes Income taxes: Furniture Computer equipment FIFO $ 28,600 33,600 LIFO $31,600 29.600 d. During the period, the company wrote off $1,360 worth of bad debts. e. At the end of the period, the company estimated that 1.5 percent of gross sales on account would prove to be uncollectible. f. Costs to deliver furniture to customers were $6,600. g. Rent, utilities, salaries, and other operating expenses were $23,600. h. At the end of the period, the company discovered that the net realizable value of ending Inventory was $1,160 less than original cost Required: Complete the following table. Indicating the effects of each transaction on each Income statement line item or subtotal listed. Indicate the amount and use a minus sign for a decrease; leave the space blank for no effect. (Hint: Remember that any Item that affects revenues or expenses also affects Income Tax Expense by the amount of the revenue or expense times the income tax rate.) When you are done, sum across the columns to produce Easley-O'Hara's Income statement for the quarter. Note: Deductible amounts should be entered with a minus sign. Net sales Cost of goods sold Gross profit Selling, general, and administrative expenses Income before income taxes Income tax expense Net income Transaction b. C. d. g. h. Income Statement

Easley-O'Hara Office Equipment sells furniture and technology solutions to consumers and to businesses. Most consumers pay for cheir purchases with credit cards and business customers make purchases on open account with terms 1/10, net 30. Costs of furniture nventory purchases have generally been rising and costs of computer Inventory purchases have generally been declining. The Company's Income tax rate is 20 percent Casey Easley, the general manager, was particularly Interested in the financial statement effects of the following facts related to first quarter operations. a. Credit card sales (discount 2 percent) were $39,000. b. Sales on account were $116,000. The company expects one-half of the accounts to be paid within the discount period. c. The company computed cost of goods sold for the transactions in (a) and (b) above under FIFO and LIFO for its two product lines and chose the method for each product that minimizes Income taxes: Furniture Computer equipment FIFO $ 28,600 33,600 LIFO $31,600 29.600 d. During the period, the company wrote off $1,360 worth of bad debts. e. At the end of the period, the company estimated that 1.5 percent of gross sales on account would prove to be uncollectible. f. Costs to deliver furniture to customers were $6,600. g. Rent, utilities, salaries, and other operating expenses were $23,600. h. At the end of the period, the company discovered that the net realizable value of ending Inventory was $1,160 less than original cost Required: Complete the following table. Indicating the effects of each transaction on each Income statement line item or subtotal listed. Indicate the amount and use a minus sign for a decrease; leave the space blank for no effect. (Hint: Remember that any Item that affects revenues or expenses also affects Income Tax Expense by the amount of the revenue or expense times the income tax rate.) When you are done, sum across the columns to produce Easley-O'Hara's Income statement for the quarter. Note: Deductible amounts should be entered with a minus sign. Net sales Cost of goods sold Gross profit Selling, general, and administrative expenses Income before income taxes Income tax expense Net income Transaction b. C. d. g. h. Income Statement

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 7P

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