Determining and Interpreting the Effects of Transactions on Income Statement Categoriesand Return on Assets (AP5-4)
Creative Technology, a computer hardware company based in Singapore, developed the modem standard for computer sound cards in the early 1990s. Recently, Creative has released a line of portable audio products to directly compete with Apple's popular iPod. Presented here is a recent income statement (dollars in millions).
Net sales | $9I5 |
Costs and expenses |
|
Cost of sales | 737 |
Research and development | 64 |
Selling, general, and administrative | 175 |
Operating income (loss) | (61) |
Interest and other income (expenses), net | 112 |
Income (loss) before provision (benefit) for income taxes | 51 |
Provision (benefit) for income taxes | 23 |
Net income (loss) | $ 28 |
Its beginning and ending assets were S393 and S409, respectively.
Required:
Listed here are hypothetical additional transactions. Assuming that they also occurred during the fiscal year, complete the following tabulation, indicating the sign of the effect of each additional transaction (+ for increase, – for decrease, and NE for no effect). Consider each item independently and ignore taxes.
a.Recorded sales on account of S500 and related cost of goods sold of S475.
b.Incurred additional research and development expense of SI00. which was paid in cash.
c.Issued additional shares of common stock for S200 cash.
d. Declared and paid dividends of S90.
Transaction | Gross Profit | Operating Income (Loss) | Return on Assets |
a. |
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b. |
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c. |
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d. |
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