Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2019, financial statements:

For the Year Ended December 31, 2019:
Net revenues	$	96,600
Cost of services provided		34,200
Depreciation expense		19,500
Operating income	$	42,900
Interest expense		11,400
Income tax expense		9,600
Net income	$	21,900
At December 31, 2019:
Assets
Cash and short-term investments	$	8,400
Accounts receivable, net		29,400
Property, plant, and equipment, net		232,200
Total assets	$	270,000
Liabilities and Stockholders Equity
Accounts payable	$	4,500
Income taxes payable		4,800
Notes payable (long term)		142,500
Paid-in capital		30,000
Retained earnings		88,200
Total liabilities and stockholders equity	$	270,000

At December 31, 2018, total assets were $246,000 and total stockholders equity was $97,800. There were no changes in notes payable or paid-in capital during 2019. Required:

1. 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?
2. 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?
3. Calculate the companys average income tax rate. (Hint: You must first determine the earnings before taxes.)

5. Calculate the amount of total current assets.
6. Why doesnt the company have a Merchandise Inventory account?
7. Calculate the amount of working capital and the current ratio at December 31, 2019. Assess the companys overall liquidity.
8. Calculate ROI (including margin and turnover) and ROE for the year ended December 31, 2019.
9. Calculate the amount of dividends declared and paid during the year ended December 31, 2019. (Hint: Do a T-account analysis of retained earnings.)

ANSWER QUESTIONS A-J

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?

the owners of the firm would be interested in knowing what the approximate "economic" cost of fixed asset utilization is, because a substantial portion of the firms profits will need to be invested in replacement machinery and equipment.

The depreciation expenditure does not affect the financial position of Gerrard Construction Co

B.From a conceptual point of view, should depreciation be considered a cost of providing services?

Yes or No

C.Why do you suppose the amounts of depreciation expense and interest expense are so high for Gerrard Construction Co.? (Select all that apply.)

	Depreciation expense is high because Gerrard Construction Co. is a highly capital-intensive firm. Depreciation expense is high because the firm has a large amount of long-term debt. Interest expense is high because the firm has a large amount of long-term debt Interest expense is high because Gerrard Construction Co. is a highly capital-intensive firm.

D.To which specific balance sheet accounts should a financial analyst relate these expenses?

	Depreciation should be related to property, plant, and equipment, and interest should be related to notes payable. Interest should be related to property, plant, and equipment, and depreciation should be related to notes payable.

E.Calculate the companys average income tax rate. (Hint: You must first determine the earnings before taxes.) (Round your answer to 1 decimal place. (e.g., 32.1))

Average income tax rate ______%

F.Calculate the amount of total current assets. (Enter your answer in whole dollars (Example - enter 20,000,000 and not 20,000)

Cash and short term investments _________

Accounts receivable,net _________

Total current assets $_____

G.Why doesnt the company have a Merchandise Inventory account?

G(A). As an excavation contractor, the firm sell goods to its customers, but does not provide services.

G(B). An excavation contractor, the firm provides services to its customers, but does not sell goods.

H.Calculate the amount of working capital and the current ratio at December 31, 2019. Assess the companys overall liquidity. (Enter your answers in whole dollars (Example - enter 20,000,000 and not 20,000). Round your ratio answer to 2 decimal places. (e.g., 32.16))

Working capital __________

current ratio__________

the companys overall liquidity is _______________

I.Calculate ROI (including margin and turnover) and ROE for the year ended December 31, 2019. (Round "Turnover" answer to 2 decimal places and other answer to 1 decimal place.)

ROI _______%

margin_______%

turnover________

ROE_________%

J.Calculate the amount of dividends declared and paid during the year ended December 31, 2019. (Hint: Do a T-account analysis of retained earnings.) (Enter your answers in whole dollars (Example - enter 20,000,000 and not 20,000).)

dividends declared and paid________________