Formulas

• Accounting equation: Assets = Liabilities and Owner's Equity
• Current ratio: current assets/current liabilities
• Acid test ratio: (current assets - inventory)/current liabilities
• Return on equity: net income/total shareholder's equity
• Return on assets: net income/total assets
• Assets to equity: total assets/shareholder's equity
• Profit margin: net income/net sales (or sales if net sales not available)
• Gross margin: gross profit/sales
• Operating profit or EBIT (Earnings Before Interest and Taxes): net income plus interest and tax
• Sources of Cash (Year Over Year) Assets - (decrease) Liabilities + (increase) Owner's Equity + (increase)
• Uses of Cash (Year Over Year) Assets + (increase) Liabilities - (decrease) Owner's Equity - (decrease)

QUESTION

Based on the Income Statement below:

Spencer Company Income Statement

Year Ended December 31, 2019

Revenue:
Fees Earned	$263,000
Less Expenses:
Wages	127,000
Rent	81,000
Utilities	7,000
Insurance	5,000
Depreciation	1,200
Miscellaneous	1,550
Income Before Taxes	58,750
Less Taxes @35%	20,563
Net Income	$38,187

Looking on the accounts on the income statement, is Spencer Company a service business or manufacturing business?

Group of answer choices

Service and manufacturing

Service

Manufacturing

question 2

Formulas

• Accounting equation: Assets = Liabilities and Owner's Equity
• Current ratio: current assets/current liabilities
• Acid test ratio: (current assets - inventory)/current liabilities
• Return on equity: net income/total shareholder's equity
• Return on assets: net income/total assets
• Assets to equity: total assets/shareholder's equity
• Profit margin: net income/net sales (or sales if net sales not available)
• Gross margin: gross profit/sales
• Operating profit or EBIT (Earnings Before Interest and Taxes): net income plus interest and tax
• Sources of Cash (Year Over Year) Assets - (decrease) Liabilities + (increase) Owner's Equity + (increase)
• Uses of Cash (Year Over Year) Assets + (increase) Liabilities - (decrease) Owner's Equity - (decrease)

QUESTION

Based on the Income Statement below:

Wilson Company Income Statement

Year Ended December 31, 2019

Revenue:
Sales	$187,000
Less Expenses:
Wages	127,000
Rent	11,000
Utilities	7,000
Insurance	5,000
Depreciation	1,200
Miscellaneous	1,550
Income Before Taxes	52,750
Less Taxes @35%	18,463
Net Income	$34,287

If the profit margin for the year ended December 31, 2018 was 16.0%, does the year ended December 31, 2019 profit margin from the income statement above show a positive (increase) or negative (decrease) trend from 2018 through 2019?

Group of answer choices

Negative

No difference year over year

Positive