Do Earnings Lie

Do Earnings Lie:

For this assignment am going to play a role of an aggressive manager.

Additional information calculations:

Prepaid Insurance:

Insurance exp = 24,000 * ½ = $12,000 (1 year is used up)

Unearned Revenue:

Earned income = 10,000 – 2,000 = 8,000 (as only 2,000 is on backorder)

Notes Payable:

Interest expense = 250,000 * 4/12 * 8% = 6,667

Accounts Receivable:

Uncollectible amount = 24,039*1% = 240 (aggressive step to 1%, but this would change based on the actual aging schedule)

Depreciation using SLM:

As an aggressive manager, will choose the max life years as est. life for the assets

| Cost | Est. life | Dep exp |

Building | 350,000 | 40 | 8,750 |

Furniture | 130,000 | 20 | 6,500 |

Computers | 20,000 | 5 | 4,000 |

Total Dep. | 500,000 | | 19,250 |

Inventory Costs:

Using FIFO, so that the COGS will be low;

= 1,569,500 – (400*560) = 1,345,500

Income Tax:

= 199,478 *35% = 69,817

Income Statement

For the year ended Dec 31st, 2012 (Adjusted) |

|

Sales | 2,241,109 |

Less: COGS | 1,345,500 |

Gross Margin | 895,609 |

Less: selling and admin exp | 655,974 |

Rent Exp | 2,000 |

Insurance expense | 12,000 |

Interest exp | 6,667 |

Uncollectible exp | 240 |

Dep exp | 19,250 |

Income before taxes | 199,478 |

Income tax | 69,817 |

Net Income | 129,661 |

Balance Sheet

At Dec 31st, 2012 (Adjusted) |

|

Assets | Liabilities |

Current Assets: |   | Current Liabilities: |   |

Cash | 19,740 | Accounts payable | 50,468 |

Accounts rec., (less allow. - 240) | 23,799 |...