Question

Last​ year, Stevens Inc. had sales of ​$399 comma 000​, with a cost of goods sold of ​$113 comma 000. The​ firm's operating expenses were $ 127 comma 000​, and its increase in retained earnings was ​$53 comma 000. There are currently 21 comma 800 common stock shares outstanding and the firm pays a ​$1.63 dividend per share. a. Assuming the​ firm's earnings are taxed at 34 ​percent, construct the​ firm's income statement. b. Compute the​ firm's operating profit margin. c. What was the times interest​ earned?

Answer 1

a) Net Sales $399,000

Cost of goods sold $113,000

Gross profit $286,000 ( Net sales - Cost of goods sold )

operating expenses $ 127,000

Operating income $159,000 (Gross profit - Operating expenses)

interest expense $24,857.58 (Operating income - Income before tax)

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b) 39.85%

c) 6.39

Step-by-step explanation:

Given;

Sales = $399,000

Cost of goods sold = $113,000

firm's operating expenses = $ 127,000

increase in retained earnings = ​$53,000

common stock shares outstanding = 21,800

Dividends paid per share = $1.63

Thus,

Dividends = 21,800 × $1.63 = $35,534

Net income = Dividends + increase in retained earnings

= $35,534 + $53,000

= $88,534

Now,

income before taxes =
`\frac{\textup{Net income}}{\textup{1 - tax rate}}`

or

income before taxes =
`\frac{\textup{88,534}}{\textup{1 - 0.34}}`

= $134142.42

Thus,

Taxes = $134142.42 - $88,534 = $45,608.42

a)

Net Sales $399,000

Cost of goods sold $113,000

Gross profit $286,000 ( Net sales - Cost of goods sold )

operating expenses $ 127,000

Operating income $159,000 (Gross profit - Operating expenses)

interest expense $24,857.58 (Operating income - Income before tax)

==================================================================

b) operating profit margin =
`\frac{\textup{Operating income}}{\textup{Net sales}}*100\%`

or

operating profit margin =
`\frac{\textup{159,000}}{\textup{399,000}}*100\%`

or

operating profit margin = 39.85%

c) Times interest earned =
`\frac{\textup{Operating income}}{\textup{Interest expenses}}`

or

Times interest earned =
`\frac{\textup{159000}}{\textup{24857.58}}`

income before interest expense and taxes/interest expense

= 6.39