Question

For the Apa Corp. [E6): o Consolidated Statement of Income For the year ended Dec 31, 2018 Net sales: $642,600 Cost of sales:$(320,020) Gross profit:$322,580 Advertising and promotion expenses:$(71,920) Selling and Administrative Expenses:$(144,550) Operating expenses:$(216,470) Operating income:$106,110 Interest expense:$(7,530) Interest income:$810 Other nonoperating income:$(320) Income before income taxes:$99,070 Provision for income taxes:$(21,220) Net income:$77,850 The company's statutory tax rate is 36.5%. Apa Corp.s tax rate on operating profit is: 20.70 % 21.13% 21.56 % 21.99 % 22.42%

Answer 1

Answer

Answer to Part A-

APA Corp. Income and Expense Statement-
Particulars		Amount
Net Sales		$      642,600.00
Cost of Sales		$     (320,020.00)
Gross Profit		$      322,580.00
Advertisement and promotion Expenses		$       (71,920.00)
Selling and Adminstrative Expenses		$     (144,550.00)
Operating Expenses		$    (216,470.00)
Operating Income/Profit		$      106,110.00
Interest Expenses		$         (7,530.00)
Interest Income		$              810.00
Other Non Operating Income		$            (320.00)
Income Before income tax/EBIT		$        99,070.00
Provision for income tax		$       (21,220.00)
Net Income		$        77,850.00
Statuatory Tax Rate		36.50%
Calculation of Tax Rate on Operating Profit of APA Corp.-
Non Operating Income-
Interest Income		$              810.00
Other Non Operating Income		$            (320.00)
A		$              490.00
Non Operating Expenses-
Interest Expenses		$         (7,530.00)
B		$        (7,530.00)
Non Operating Loss (A-B)		$        (7,040.00)
Statuatory Tax Rate		36.50%
Tax on Non Operating Income	C	$           2,569.60
Provision for income tax	D	$        21,220.00
Tax on Operating Income	E=C+D	$        23,789.60
Operating Income/Operating Profit	F	$      106,110.00
Tax Rate on Operating Profit	G=E/F*100	22.42%

Hence, Apa Corp.s tax rate on operating profit is 22.42% (Option e)

Answer to Part B-

			31-Dec-14	31-Dec-13
			Year 2014	Year 2013
Particulars			Amount	Amount
Accounts Payable			87,000.00	82,600.00
Taxes Payable			2,500.00	15,000.00
Short Term Debt			20,000.00	20,000.00
Long Term Debt			100,000.00	100,000.00
Common Stock	$        0.10		520.00	500.00
Additional Paid in Capital			32,500.00	40,000.00
Retained Earnings			388,430.00	?
Treasury Stock	2000	1600	(15,000.00)	(10,000.00)
			Year 2014
Net Sales			383,600.00
COGS			(154,200.00)
Selling and General Expenses			(69,000.00)
Interest Expenses			(4,900.00)
EBT			155,500.00
Provision for tax on income			(32,000.00)
Net Income			123,500.00
Return on Equity			0.3289
Let the retained earnings as on Dec 31, 2013 be "x"
Calculation of average shareholder's equity:-
			31-Dec-14	31-Dec-13
Particulars			Amount	Amount
Common Stock			520.00	500.00
Add: Additional Paid in Capital			32,500.00	40,000.00
Total Paid in Capital			33,020.00	40,500.00
Add: Retained Earnings			388,430.00	x
			421,450.00	40,500 + x
Less: Treasury Stock			15,000.00	10,000.00
Shareholder's equity			406,450.00	30500 + x
Average Shareholder's equity			(Shareholder equity as on Dec 31, 2014 + Shareholder equity as on Dec 31, 2013)/2
			(406,450+30,500+x) / 2
Average Shareholder's equity			(436,950+x) / 2
Return on equity=	Net Income / Average shareholder's equity
0.3289 =	123,500/[(436,950+x)/2]
0.3289*[(436,950+x)/2]=	123,500
(0.3289*436,950)+(0.3289*x)=	123,500*2
143,713 + 0.3289x =	247,000
0.3289x=	103,287
x=	314,038
Hence, the retained earnings on Dec 31,2013 were 314,038 (Option d)