1. If sales were $3,200,000 in 2007 rather than $2,900,000. The 2007 net income would be $433,900 and the retained earnings would be $969,000 Changing the tax rate to 40%, would cause the 2007 net income to be $123,600 and the retained earnings would be $659,600.

2. Create a common-size income statement for 2006 and 2007. This statement should be created on a separate worksheet with all formulas linked directly to the income statement.

 

Spacely's Space Sprockets
Balance Sheet
For the Year Ended December 31, 2007
	2007	2006
Assets
Cash	$ 52,000	$ 41,000
Marketable Securities	$ 25,000	$ 21,000
Accounts Receivable	$ 420,000	$ 372,000
Inventory	$ 515,000	$ 420,000
Total Current Assets	$ 1,012,000	$ 854,000
Gross Fixed Assets	$ 2,680,000	$ 2,170,000
Accumulated Depreciation	$ 547,000	$ 485,000
Net Plant & Equipment	$ 2,133,000	$ 1,685,000
Total Assets	$ 3,145,000	$ 2,539,000
Liabilities & Owner's Equity
Accounts Payable	$ 505,000	$ 310,000
Accrued Expenses	$ 35,000	$ 30,000
Total Current Liabilities	$ 540,000	$ 340,000
Long-term Debt	$ 1,168,100	$ 1,061,000
Total Liabilities	$ 1,708,100	$ 1,401,000
Common Stock	$ 76,000	$ 60,000
Additional Pain-in-Capital	$ 691,000	$ 542,000
Retained Earnings	$ 669,900	$ 536,000
Total Owner's Equity	$ 1,436,900	$ 1,138,000
Total Liab. & Owner's Equity	$ 3,145,000	$ 2,539,000

Transcribed Image Text:

Spacely's Space Sprockets Income Statements For the Years 2006 and 2007 2006 2007 Sales 2,900,000 2,350,000 2,030,000 Cost of Goods 1,645,000 870,000 Gross Profit 705,000 Depreciation 62,000 58,000 Selling & Admin. Expense 425,000 390,000 Lease Expense 65,000 65,000 Net Operating Income 318,000 192,000 Interest Expense 112,000 68,000 Earnings Before Taxes 206,000 124,000 Taxes 72,100 43,400 Net Income 133,900 80,600 Notes: Тах Rate 35.00% 35.00% 38,000 Shares 30,000 2.69 Eamings Per Share 3.52