Chapter 4 Accounting Information Systems 195The Digital Express Company disclosed a net income of $12,000 on revenues of $400,000 for fis-
cal year ending December 31, 2007. The company had $500,000 of 6% debt outstanding during
the year. In addition, the company had depreciation and amortization expenses of $32,000. The
company’s 2007 tax rate was 40%. The management believes a pro forma disclosure of EBITDA
would be useful to investors.
a. Determine EBITDA for 2007.
b. Determine net income divided by sales and EBITDA divided by sales for 2007.
c. What disclosure must management provide in addition to the pro forma EBITDA calculations?Condensed income statements for Comcast Corp., the largest U.S. cable operator, and DirecTV
Group, Inc., a satellite-based entertainment company, for a recent year are provided below (in
millions).DirecTV
Comcast Corp. Group Inc.
Revenues $20,307 $11,360
Operating expenses (excluding depreciation) $ 7,462 $ 8,668
Selling, general, and administrative expenses 5,314 3,973
Depreciation expense 3,420 670
Amortization expense 1,203 168
Total expenses $17,399 $13,479
Operating income (loss) $ 2,908 $ (2,119)
Interest income (expense) (1,112) 359
Income (loss) before tax $ 1,796 $ (1,760)
Income tax (expense) benefit (826) 704
Net income $ 970 $ (1,056)a. Determine EBITDA for each company.
b. Determine EBITDA divided by revenues for each company.
c. Compare and contrast Comcast with DirecTV based on your answers to parts (a) and (b).Exercise 4-33
EBITDA
Goal 6
Exercise 4-34
EBITDA
Goal 6
ACCOUNTING APPLICATION PROBLEMS
On March 1, 2006, Tim Cochran established Star Realty, which completed the following trans-
actions during the month:
a. Tim Cochran transferred cash from a personal bank account to an account to be used for
the business in exchange for capital stock, $12,000.
b. Purchased supplies on account, $850.
c. Earned sales commissions, receiving cash, $12,600.
d. Paid rent on office and equipment for the month, $2,000.
e. Paid creditor on account, $450.
f. Paid dividends, $1,500.
g. Paid automobile expenses (including rental charge) for month, $1,700, and miscellaneous
expenses, $375.
h. Paid office salaries, $3,000.
i. Determined that the cost of supplies used was $605.Instructions
- Journalize entries for transactions (a) through (i), using the following accounts: Cash;
Supplies; Accounts Payable; Capital Stock; Dividends; Sales Commissions Earned; Office
Salaries Expense; Rent Expense; Automobile Expense; Supplies Expense; Miscellaneous
Expense. Show the effects of each transaction on the financial statements using the margin
notation illustrated in this chapter.
Problem 4-1A
Journal entries and trial
balance
Goal 3
- Total debit column,
$25,000
GENERAL LEDGER
(continued)