AB 116 WEEK 8 LEARNING ACTIVITY

AB 116 WEEK 8  1.	Question	In 2014, Spanish Fort Corporation had net sales of $500,000 and cost of goods sold of $300,000. Operating expenses were $93,000, and interest expense was $7,500. The corporation's tax rate is 30%. The corporation declared preferred dividends of $7,000 in 2014, and its average common stockholders' equity during the year was $500,000.
(a) Prepare an income statement for Spanish Fort Corporation.
(b) Compute the Spanish Fort Corporation's return on common stockholders' equity for 20
Which of the following is correct?

 	Student Answer:		 
(a) 
SPANISH FORT CORPORATION 
Income Statement 
For the Year Ended December 31, 2014 
Net sales                                          $500,000 
Cost of goods sold                             300,000 
Gross profit                                        200,000 
Operating expenses                             93,000 
Income from operations                     107,000 
Net income                                        $ 107,000 
(b)          Net income - preferred dividends    = $107,000 - $7,000 = 20.00% 
            Average common stockholders' equity             $500,000      
 			 
(a) 
SPANISH FORT CORPORATION 
Income Statement 
For the Year Ended December 31, 2014 
Net sales                                          $500,000 
Cost of goods sold                             300,000 
Gross profit                                        200,000 
Operating expenses                             93,000 
Income from operations                     107,000 
Interest expense                                    7,500 
Net income                                        $ 99,500 
(b)          Net income - preferred dividends    = $99,500 = 20.00% 
            Average common stockholders' equity             $500,000      
 		 	 
(a) 
SPANISH FORT CORPORATION 
Income Statement 
For the Year Ended December 31, 2014 
Net sales                                          $500,000 
Cost of goods sold                             300,000 
Gross profit                                        200,000 
Operating expenses                             93,000 
Income from operations                     107,000 
Interest expense                                    7,500 
Income before income taxes                99,500 
Income tax expense                              29,850 
Net income                                        $ 69,650 
(b)          Net income - preferred dividends    = $69,650 - $7,000 = 12.53% 
            Average common stockholders' equity             $500,000      


 	Points Received:	10 of 10 
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