Question

You have owned the Shocker Pens, Inc. Company for three years and business is going great. It is time to do your quarterly Income Statement for the period 1 October – 31 December. The above blank Income Statement needs to be completed to show the Company’s Sales Revenue – Expenses = Profits. Here is the info you need to complete this exercise. You start by adding up your sales for 3 months and find out that sales total $750,000 and Cost of Goods Sold equals $110,000. Now that you know Sales Revenue and the Cost to supply the Goods to your customers, you start looking at your Operating Expenses – THE COST OF DOING BUSINESS FOR 3 MONTHS! You determine that you have Salaries 35,000, Rent 4,000, Renters Insurance 450.00, Van Insurance 110.00, Utilities 250.00, Supplies 2,000, Marketing 1,500, and Maintenance on Equipment 600.00. (Already figured for three months). In July, you bought that new company Van you wanted. The cost of the Van was 25,969 and you financed it for FIVE (5) years. This will be your first time depreciating the Van on the Income Statement. You need to compute depreciation expense for 3 months. . The Van has a life cycle of 10 years. You paid 25,969, financed for 5 years at .07% interest rate: Depreciation expense: 25,969 divided by 10 = _______ divided by 12 =_____ X 3 = ___________ The next step in this great exercise is to plug in the numbers you have so far and do some adding and subtracting. Now the fun part – You took out a huge loan to start your business three years ago, so you have to account for the interest you pay on that loan. The original loan amount was for 1,100,000 to be repaid in 10 years. The interest rate is .12% annually, which equates to: 1,100,000 X .12% = ________ divided by 12 = _______X 3 = ____________. Now compute the interest on the Van to add to this: 25,969 X .07% = ___________ divided by 12 =___________ X 3 =_________. Total Interest: Loan + Van = The final step IS to compute income tax. Your tax rate is .09% on Earnings before Income TAX.

Answer 1

Earnings After Tax= EBIT - (Interest + Taxes)= $595,441 - (335 + 536)= $595,441 - $871

EAT= $ 594,570

EBIT= Sales - Cost of goods sold - Operating expenses= $750,000 - $110,000 - $44,559= $595,441

Interest rate on loan taken at the beginning= 0.12%

Interest rate on finance taken for purchase of van= 0.07%

Income tax rate given= 0.09%

1 October for the period shocker pens, Inc. Amount Amount ($) 750,000 (110,000) Quarterly income statement - 31 December of The Income statement Particulars Working sales Revenue Less: Cost of goods sold Gross profit Less operating Expenses salaries Rent penter's Insurance van Insurance utilities supplies 640,000 35,000 4,000 450 110 250 2,000 Marketing 1,500 600 Maintenance on Equipment Depreciation Expense 649 value of van = 25,969 Life= lo years Depreciation for 3 months: = 25969 x 3 12 10 = 649.225 í 649 (44559) Earnings before Interest and tax 595,441

particulars Amount Amount Workings 595, 441 Earnings before Interest and tax Less: Interest Expense Interest on loan : (for 3 months) = 100,000 X 0.12% X 3/12 = 330 330 Interest on van (for 3 months) = 25969 * 0.07% x 3/12 = 4.54 4.54 334.5 335 (335) 595, 106 Earnings before Income tan Lees Income tax @ 0.09./ EBIT x tax rate = 595106 80.09% = 535.59 ~ 536 536 (536) after 594,510 Earnings tax.