E3-1.

Prepare an income statement. Answer: a. Name of Company Income Statement ($000,000) Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Sales expense General and administrative expenses Lease expense Depreciation expense Total operating expense Operating profits (EBIT) Less: Interest expense Net profit before taxes Net profits after taxes Less dividends ($1.10 x 4.25 million shares) Additions to Retained earnings b. See income statement c. EPS = earnings available for common stockholders Number of shares of common stock outstanding 11,700,000 / 4,2508,000 = $2.75 $345.0 255.0 $90.0 $ 18.0 22.0 4.0 25.0 $ 69.0 $ 21.0 3.0 $ 18.0 6.3 $ 11.7 4.675 $ 7.025

E3-2. Income statements and balance statements Answer: From the table in a, the reader can see that the calculations begin with sales revenue and end with net profits after taxes. Had there been a loss for the year, the final result would have been a net loss after taxes. The balance statement balances the firms assets against its financing, which can be either debt or equity. The total value of all of the firms assets should equal the sum of its short- and long-term debt plus stockholders equity including preferred stock, common stock at par value, paid in capital in excess of par on common stock and retained earnings from previous profitable years in which some of the earnings were held back and not paid out as dividends. Calculation of EPS and retained earnings LG 1; Intermediate a. Earnings per share: Net profit before taxes Less: Taxes at 40% Net profit after tax Less: Preferred stock dividends Earnings available to common stockholders
Earnings per share

P3-5.

$218,000 87,200 $130,800 32,000 $ 98,800

Earning available to common stockholders $98,800 $1.162 Total shares outstanding 85,000

b. Amount to retained earnings: 85,000 shares $0.80 $68,000 common stock dividends Earnings available to common shareholders Less: Common stock dividends To retained earnings $98,800 68,000 $30,800