The Chief Financial Officer of Quality Furniture, Inc. was reviewing the

income statement of her firm in preparation for a meeting with the Board

of Directors. The information is shown below.

Quality Furniture Inc.

Income Statement

For the Years Ended December $31,2019$ & $2020$

$20192020$

Sales $$877,200$ $$923,147$

Cost of goods sold $343,720344,160$

Gross profits $533,480578,987$

Selling and administrative expenses $81,00093,237$

Depreciation Expense $112,000120,000$

Operating income $340,480365,750$

Interest expense $22,33010,000$

Earnings before taxes $318,150355,750$

Taxes $(35\%)111,353124,512$

Net Income $$206,797$ $$231,238$

Preferred stock dividends $-20,000-20,000$

Earnings available to common stockholders $$186,797$ $$211,238$

Shares outstanding $100,000100,000$

Earnings per share $$1\mathrm{.}87$ $$2\mathrm{.}11$

$$ 

 

Questions:

a$.$ What is the percentage increase in sales between $2019$ and $2020?$

$(923$

b$.$ What is the percentage increase in Net Income between $2019$ and

$2020?$

c$.$ Assume you are asked why Net Income increased percentagewise

more rapidly than sales. To answer this, take each expense account

$($from cost of goods sold through taxes$)$ as a percentage of sales for

each year and indicate whether it was a contributor or detractor from

the superior growth in Net Income. Remember declining percentage

$$costs$$ contribute to profit. Also large amounts such as cost of

goods sold have a greater impact than smaller amounts such as

depreciation or interest.

d$.$ If cost of goods sold could be reduced to $33$ percent of sales in $2020$

while all else remained constant $($with the exception of taxes which

remain at $35$ percent of earnings before taxes$),$ what would earnings

per share be in $2020?$