Income Statement | academiascholars.com

1. QUESTION
In this module, you were introduced to the income statement and profitability ratios. In this assignment, you will use this information to create an income statement and then analyze it for profitability. Selected accounts for Jackson, Inc. are listed below along with their balances before closing the year of 12/31/12. Jackson, Inc. is a firm that manufactures wireless mouse systems for laptops. Use this information to complete the required elements below.

Interest expense
2,000

Sales revenue

297,000

Selling expenses

38,200

Administrative expenses

16,700

Cost of goods sold

162,300

Dividends1

12,200

Gain on sale of equipment

3,600

Loss from fire

7,500

Retained Earnings (1/1/12 balance)

335,000

Tax expense

22,800

1Dividends were declared and paid to Jackson, Inc. stockholders
Required:

On a spreadsheet, prepare a multistep income statement for the year ending 12/31/12 with proper heading. See link below for sample income statement. Near the bottom of your income statement should be a subtotal for income before taxes and then you should subtract taxes to compute net income. Net income should have a double underline.
On the same spreadsheet, prepare a statement of retained earnings for the year ending 12/31/12 with proper heading. See link below for sample statement of retained earnings. There are no adjustments to retained earnings and ending retained earnings should have a double underline.
On the same spreadsheet, compute the gross profit margin, operating income margin, and net profit margin for 2012, showing the numerator and denominator for all ratios. Take ratios out to the nearest hundredth of a percentage (e.g., 33.33%).
On the same spreadsheet, write a paragraph analyzing each of the profitability ratios for Jackson, Inc. given the following information from previous years and competitors.

Gross profit margin

Operating income margin

Net profit margin

Jackson, 2011

47.22%

26.52%

17.75%

Jackson, 2010

48.87%

25.43%

17.03%

Competitor, 2012

43.22%

31.20%

21.14%

The following links provide sample formatting for income statements and statements of retained earnings.

Subject	Business	Pages	5	Style	APA

Answer

Jackson, Inc.
Income Statement
for the Year Ended December 31, 2012
Sales Revenue		297000
Cost of Goods Sold		162,300
Gross Profit		134,700
Operating Expenses
Selling Expenses	38200
Administrative Expenses	16,700
Total Operating Expenses		54,900
Non-Operating Expenses
Interest Expenses	2000
Loss from Fire	7,500
Total Operating Expenses		9,500
Total Operating Income		70,300
Non-Operating Income
Gain from Sale of Equipment	3,600
Total non operating Income		3600
Net Income before Taxes & Dividends		73,900
Less Taxes		22300
Net Income after taxes		51,600

Less Dividends		12,200
Net Income after taxes & Dividends		39,400

Statement of Retained Earnings
Retained Earnings B/fwd (1/1/2012)		335,000
Retained Earnings C/fwd (31/12/2012)		39,400
Total Retained Earnings (31/12/2012)		374,400






Profitability Ratio Calculations
Gross Profit Margin	(134,700/297,000)x100	45.35%
(Gross Profit/Total Sales)

Operating Income Margin	(70,300/297,000)x100	23.67%
(Operating Income/ Total Sales)

Net Profit Margin	(51600/297000)x100	17.37%
(Net Profit/Total Sales)


Ratio Analysis
	2010	2011	2012	2012
Gross Profit Margin	48.87%	47.22%	45.35%	43.22%
Operating Income Margin	25.43%	26.52%	23.67%	31.20%
Net Profit Margin	17.03%	17.75%	17.37%	21.14%

The gross profit margin is calculated by dividing the gross profit and the total sales of the company
In the year 2010, the company had a gross sales margin of 45.35% compared to the industry average
of 43.22%. The company’s performance was better than the industry’s average. However, compared
to its previous performance, the year 2012 had the lowest performance. In 2011, the gross profit
margin was 47.22% while in 2010 the performance was 48.87. It can be concluded that the
company’s performance in gradually reducing.

The operating income margin is calculated by dividing the operating income and the total sales of the company
In the year 2010, the company had an operating income margin of 23.67% compared to the industry average
of 31.20%. The company’s performance was lower than the industry’s average as well as when
its compared to its previous performance, the year 2012 had the lowest performance. In 2011, the operating income
margin was 26.52% while in 2010 it was 25.43% It can be concluded that the
company’s performance is gradually reducing.

The net profit margin is calculated by dividing the net income after taxes and the sales revenues. In 2012
the net profit margin was 17.37% while the industry average or its competitor had 21.14%. The company’s
performance was lower than the industry’s average. Compared to the year 2011, the performance was lower
as the company achieved 17.75% in 2011, but in 2010, the net profit margin was 17.03%. The company’s performance
compared to previous years is average, however, it has to improve its performance to stay ahead in the industry.