Question

Complete the following Income Statement for 12/31/2019 with these assumptions which are in no particular order:...

Complete the following Income Statement for 12/31/2019 with these assumptions which are in no particular order:

  1. The company has an Operating Profit Margin of 30%
  2. The company has an Account Receivable turnover of 12
  3. The Contribution Rate for this company is 40%
  4. They have an Interest Coverage ratio of 5
  5. All sales for the company were on credit
  6. They have a 30% tax rate
  7. The account receivable balance as of 12/31/2019 was $7,000,000

Homework Answers

Answer #1

Solution:-

Income statement for 12/31/2019

Particulars Amount
Sales $84,000,000
-Variable costs ($50,400,000)
Contribution $ 33,600,000
-Fixed costs ($8,400,000)
EBIT $25,200,000
-Interest ($5,040,000)
EBT $20,160,000
-Tax (EBT * tax rate) ($6,048,000)
Net Income $14,112,000

Working notes:

1.Sales = Accounts receivable * Turnover ratio

= $7,000,000 * 12

= $84,000,000

2.Variable cost = Sales * (1-contribution rate)

= $84,000,000 * (1-40%)

= $84,000,000 * 60%

= $50,400,000

3.Fixed costs = Sales * (1-operating profit) - Variable costs

= $84,000,000 * (1-30%) - $50,400,000

= $84,000,000 * 70% - $50,400,000

= $58,800,000 - $50,400,000

= $8,400,000

4.Interest = Sales * operating profit / interest coverage ratio

= $84,000,000 * 30% / 5

= $5,040,000

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