Lessing Toy and Hobby (LTH) is a chain of hobby and craft stores in the Southeast. LTH operates multiple stores and is organized into two divisions: Northern and Southern. Individual stores are placed in one or the other division based on geography Recent demographic changes in the Northern Division area have led to declining foot traffic and sales in the LTH stores. Senior corporate executives have been asking whether the chain should close those stores and focus on the stores in the Southern Division. The most recent income statement for the Northern Division follows. LESSING TOY & HOBBY Northern Division For the Year Ending January 31 (5000) Sales revenue Costs Cost of goods sold Advertising Administrative salaries Sales commissions Rent and occupancy expense Allocated corporate support Total costs Net loss before tax benefit Tax benefit at 25% Net loss $ 12,040 $6,020 490 810 1,624 2,058 1,330 $ 12,332 $ (292) (73) $(219) The managers of Lessing Toy & Hobby (LTH) have decided to keep the stores in the Northern Division open, in spite of the dwindling demand in the area. They want to forecast what the income will be in the coming year, using the income statement as the base. The cost analyst at LTH estimates sales in the coming year will only be 85 percent of the current year sales. Cost of goods sold is estimated to be 90 percent of the current year. The managers have decided to increase advertising next year by 10 percent above the current year, but will cut administrative salaries in the Northern Division by 30 percent. They also expect to lower rent and occupancy costs by 15 percent Allocated corporate overhead, based on information from the CFO, is expected to be $1.2 million. Required: Prepare an income statement for Year 2 for the Northern Division based on the estimates provided by the cost analyst and other managers at LTH. Note: Enter your answers in thousands e.g.. 10,000,000 should be entered as 10,000. Round your answers to 2 decimal places. Enter negative amounts with a minus sign.
Lessing Toy and Hobby (LTH) is a chain of hobby and craft stores in the Southeast. LTH operates multiple stores and is organized into two divisions: Northern and Southern. Individual stores are placed in one or the other division based on geography Recent demographic changes in the Northern Division area have led to declining foot traffic and sales in the LTH stores. Senior corporate executives have been asking whether the chain should close those stores and focus on the stores in the Southern Division. The most recent income statement for the Northern Division follows. LESSING TOY & HOBBY Northern Division For the Year Ending January 31 (5000) Sales revenue Costs Cost of goods sold Advertising Administrative salaries Sales commissions Rent and occupancy expense Allocated corporate support Total costs Net loss before tax benefit Tax benefit at 25% Net loss $ 12,040 $6,020 490 810 1,624 2,058 1,330 $ 12,332 $ (292) (73) $(219) The managers of Lessing Toy & Hobby (LTH) have decided to keep the stores in the Northern Division open, in spite of the dwindling demand in the area. They want to forecast what the income will be in the coming year, using the income statement as the base. The cost analyst at LTH estimates sales in the coming year will only be 85 percent of the current year sales. Cost of goods sold is estimated to be 90 percent of the current year. The managers have decided to increase advertising next year by 10 percent above the current year, but will cut administrative salaries in the Northern Division by 30 percent. They also expect to lower rent and occupancy costs by 15 percent Allocated corporate overhead, based on information from the CFO, is expected to be $1.2 million. Required: Prepare an income statement for Year 2 for the Northern Division based on the estimates provided by the cost analyst and other managers at LTH. Note: Enter your answers in thousands e.g.. 10,000,000 should be entered as 10,000. Round your answers to 2 decimal places. Enter negative amounts with a minus sign.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Bb.3.
Transcribed Image Text:Lessing Toy and Hobby (LTH) is a chain of hobby and craft stores in the Southeast. LTH operates multiple stores and is organized into
two divisions: Northern and Southern. Individual stores are placed in one or the other division based on geography. Recent
demographic changes in the Northern Division area have led to declining foot traffic and sales in the LTH stores. Senior corporate
executives have been asking whether the chain should close those stores and focus on the stores in the Southern Division. The most
recent income statement for the Northern Division follows.
LESSING TOY & HOBBY
Northern Division
For the Year Ending January 31
($000)
Sales revenue
Costs
Cost of goods sold.
Advertising
Administrative salaries
Sales commissions
Rent and occupancy expense
Allocated corporate support
Total costs
Net loss before tax benefit
Tax benefit at 25%
Net loss
$ 12,040
$ 6,020
490
810
1,624
2,058
1,330
$ 12,332
$ (292)
(73)
$ (219)
The managers of Lessing Toy & Hobby (LTH) have decided to keep the stores in the Northern Division open, in spite of the dwindling
demand in the area. They want to forecast what the income will be in the coming year, using the income statement as the base. The
cost analyst at LTH estimates sales in the coming year will only be 85 percent of the current year sales. Cost of goods sold is
estimated to be 90 percent of the current year. The managers have decided to increase advertising next year by 10 percent above the
current year, but will cut administrative salaries in the Northern Division by 30 percent. They also expect to lower rent and occupancy
costs by 15 percent Allocated corporate overhead, based on information from the CFO, is expected to be $1.2 million.
Required:
Prepare an income statement for Year 2 for the Northern Division based on the estimates provided by the cost analyst and other
managers at LTH.
ler ----V
Note: Enter your answers in thousands e.g.. 10,000,000 should be entered as 10,000. Round your answers to 2 decimal places.
Enter negative amounts with a minus sign.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education