You should compute all of the following subtotals on your Income Statement: (1) Gross profit, (2) Operating income, (3) Income before taxes and (4) Net income. Dividends reported are dividends paid by Consolidated Can. After you have found Net income, you should then compute Ending Retained Earnings (RE). You do not have the information to compute the Earnings per share. Also the heading of an Income Statement is 3 lines long (centered). The first line contains the name of the company, the 2nd line contains the name of the statement, and the 3rd line tells the reader the time period being covered by the statement.

• 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

• Required:
1. 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 have a subtotal for Income before taxes and then subtract taxes to compute Net income. Net income should have a double underline.
2. 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.
3. 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%).
4. 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.
• http://www.accountingcoach.com/online-accounting-course/04Xpg04.html#income-statement-multiple-step
• http://accountingexplained.com/financial/statements/retained-earnings-statement

You should not only discuss patterns seen over time and comparisons of ratios to the competitor, you should get into the economic meaning of a rising or declining ratio. Where is the problem or where is the strength?


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