Calculate liquidity and profitability measures and explain various financial statement relationships for an excavation contractor Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2013, financial statements:

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Question

Calculate liquidity and profitability measures and explain various financial statement relationships for an excavation contractor Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2013, financial statements:

At December 31, 2012, total assets were $82,000 and total stockholders' equity was $32,600. There were no changes in notes payable or paid-in capital during 2013.

Required:

A: The cost of services provided amount includes all operating expenses (selling, general, and administrative expenses) except depreciation expense. What do you suppose the primary reason was for management to separate depreciation from other operating expenses? From a conceptual point of view, should depreciation be considered a cost of providing services?

B: Why do you suppose the amounts of depreciation expense and interest expense are so high for Gerrard Construction Co.? To which specific balance sheet accounts should a financial analyst relate these expenses?

C: Calculate the company's average income tax rate. (Hint: You must first determine the earnings before taxes.)

For the Year Ended December 31, 2013: 11,400 6,500