CHAPTER 2 Financial Statements and Analysis 79LG1
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the office space rented (a tax-deductible expense) were $1,350per month.Depre-
ciation expense on the office furniture and fixtures was $7,800 for the year. Dur-
ing the year, Ms. Chen paid interest of $7,500 on the $60,000 borrowed to start
the business. She paid an average tax rate of 30 percent during 2003.
a. Prepare an income statement for Cathy Chen, CPA, for the year ended
December 31, 2003.
b. Evaluate her 2003 financial performance.2–4 Calculation of EPS and retained earnings Philagem, Inc., ended 2003 with net
profit beforetaxes of $218,000. The company is subject to a 40% tax rate and
must pay $32,000 in preferred stock dividends before distributing any earnings
on the 85,000 shares of common stock currently outstanding.
a. Calculate Philagem’s 2003 earnings per share (EPS).
b. If the firm paid common stock dividends of $0.80 per share, how many dol-
lars would go to retained earnings?2–5 Balance sheet preparation Use the appropriate itemsfrom the following list to
prepare in good form Owen Davis Company’s balance sheet at December 31,
2003.Value ($000) at
Item December 31, 2003Accounts payable $ 220
Accounts receivable 450
Accruals 55
Accumulated depreciation 265
Buildings 225
Cash 215
Common stock (at par) 90
Cost of goods sold 2,500
Depreciation expense 45
Equipment 140
Furniture and fixtures 170
General expense 320
Inventories 375
Land 100
Long-term debts 420
Machinery 420
Marketable securities 75
Notes payable 475
Paid-in capital in excess of par 360
Preferred stock 100
Retained earnings 210
Sales revenue 3,600
Vehicles 25