Question

ElectroWizard Company produces a popular video game called Destructo which sells for $32. Last year ElectroWizard sold 50,000 Destructo games, each of which costs $6 to produce. ElectroWizard incurred selling and administrative expenses of $80,000 and depreciation expense of $10,000. In addition, ElectroWizard has a $100,000 loan outstanding at 12%. Their tax rate is 40%. There are 100,000 common shares outstanding.

Required:
Prepare an income statement for Electro Wizard in good form and include earnings per share (EPS)

Answer 1

Income Statement for Electro-Wizard Company

Particulars Amount

Sales (50,000 units*$32) $1,600,000

Cost of production (50,000 units*$6) ($300,000)

Net contribution $1,300,000

Selling and administration expenses ($80,000)

Depreciation expense ($10,000)

Total Operating Expenses $90,000

Operating Income $1,210,000

Interest expense ($100,000*12%) ($12,000)

Taxable Income $1,198,000

Taxes (1,198,000*40%) ($479,200)

Net Income $718,800

Earnings per share = Net Income/ Outstanding common shares

Earnings per share = $718,800 / 100,000 shares

Earnings per share = $7.18 per share