Directions
Students should submit complete answers to each of the homework problems
assigned. Complete answers include clearly showing step-by-step calculations, logic and
techniques applied in arriving at answer, supporting facts/sources and the correct final solution.
For Unit 1, please complete the following problems in the textbook.
•
Chapter 2: 3, 6, 14, 18
3. Gross profit (LO2-1)
A. Swank Clothiers had sales of $375,000 and cost of goods sold of $246,000. What is the gross
profit margin (ratio of gross profit to sales)?
B. If the average firm in the clothing industry had a gross profit of 30 percent, how is the firm
doing?
6. Income statement (LO2-1)
Given the following information, prepare an income statement for the Dental Drilling Company.
Selling and administrative expense
$112,000
Depreciation expense
73,000
Sales
489,000
Interest expense
45,000
Cost of goods sold
156,000
Taxes
47,000
14. Balance sheet and income statement classification (LO2-1 & 2-3)
Fill in the blank spaces with categories 1 through 7:
1. Balance sheet (BS)
2. Income statement (IS)
3. Current assets (CA)
4. Fixed assets (FA)
5. Current liabilities (CL)
6. Long-term liabilities (LL)
7. Stockholders’ equity (SE)
Indicate Whether Item Is
on Balance Sheet (BS) or
Income Statement (IS)
If on Balance Sheet,
Designate Which
Category
Item
Accounts receivable
Retained earnings
Income tax expense
Accrued expenses
Cash
Selling and administrative
expenses
Plant and equipment
Operating expenses
Marketable securities
Interest expense
Sales
Notes payable (6 months)
Bonds payable, maturity
2045
Common stock
Depreciation expense
Inventories
Capital in excess of par value
Net Income (earnings after
taxes)
Income tax payable
18. Price-earnings ratio (LO2-2)
Botox Facial Care had earnings after taxes of $370,000 in 20X1 with 200,000 shares of stock
outstanding. The stock price was $31.50. In 20X2, earnings after taxes increased to $436,000
with the same 200,000 shares outstanding. The stock price was $42.00.
a. Compute earnings per share and the P/E ratio for 20X1. The P/E ratio equals the stock
price divided by earnings per share.
b. Compute earnings per share and the P/E ratio for 20X2.
c. Give a general explanation of why the P/E ratio changed.
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