tax incom Gross profit ? Allocated costs (uncontrollable) $2,030 Labor expense 41,590 Sales 189,000 Research and development (uncontrollable) 320 Depreciation expense 18,000 Net income/(loss) ? Cost of goods sold 119,070 Selling expense 1,250 Total expenses ? Marketing costs (uncontrollable) 780 Administrative expense 700 Income tax expense (21% of pretax income) ?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Financial information for BDS Enterprises for the year-ended December 31, 20xx, was gathered from an accounting intern, who has asked for your guidance on how to prepare an income statement format that will be distributed to management. Subtotals and totals are included in the information, but you will need to calculate the values.
| Pretax income | ? |
| Gross profit | ? |
| Allocated costs (uncontrollable) | $2,030 |
| Labor expense | 41,590 |
| Sales | 189,000 |
| Research and development (uncontrollable) | 320 |
| 18,000 | |
| Net income/(loss) | ? |
| Cost of goods sold | 119,070 |
| Selling expense | 1,250 |
| Total expenses | ? |
| Marketing costs (uncontrollable) | 780 |
| Administrative expense | 700 |
| Income tax expense (21% of pretax income) | ? |
| Other expenses | 310 |
A. Prepare the income statement to include all costs, but separate out uncontrollable costs using the above information. Round your answers to the nearest dollar.
| BDS Enterprises | |
| Income Statement | |
| For the Year Ended December 31, 20xx | |
| $fill in the blank d5aab6fb1fdef99_2 | |
| fill in the blank d5aab6fb1fdef99_4 | |
| $fill in the blank d5aab6fb1fdef99_6 | |
| Controllable Expenses: | |
| $fill in the blank d5aab6fb1fdef99_8 | |
| fill in the blank d5aab6fb1fdef99_10 | |
| fill in the blank d5aab6fb1fdef99_12 | |
| fill in the blank d5aab6fb1fdef99_14 | |
| fill in the blank d5aab6fb1fdef99_16 | |
| Total Controllable Expenses | $fill in the blank d5aab6fb1fdef99_17 |
| Uncontrollable Expenses: | |
| $fill in the blank d5aab6fb1fdef99_19 | |
| fill in the blank d5aab6fb1fdef99_21 | |
| fill in the blank d5aab6fb1fdef99_23 | |
| Total Uncontrollable Expenses | $fill in the blank d5aab6fb1fdef99_24 |
| Total Expenses | $fill in the blank d5aab6fb1fdef99_25 |
| $fill in the blank d5aab6fb1fdef99_27 | |
| fill in the blank d5aab6fb1fdef99_29 | |
| $fill in the blank d5aab6fb1fdef99_31 |
B. Calculate the profit margin, return on investment, and residual income, excluding uncontrollable expenses. Assume an investment base of $100,000 and 4% cost of capital. Round your percentage answers to one decimal place and residual income to the nearest dollar.
| Profit margin | fill in the blank 784c37077068fd9_1 | % |
| Return on investment | fill in the blank 784c37077068fd9_2 | % |
| Residual income | $fill in the blank 784c37077068fd9_3 |
C. Which of the following statements is correct? Uncontrollable costs are included in the income statement because
| a. these costs ultimately affect each division. |
| b. these costs are the responsibility of each division manager. |
| c. these costs are non-recurring. |
| d. these costs are head office's responsibility. |
Step by step
Solved in 2 steps
