Based on the Following Income Statement, Prepare a Common-Size Income

question 133

Essay

Based on the following income statement, prepare a common-size income statement based on sales. Round to two decimal places.
Cash $60,000
Accounts receivable, net of
allowance for doubtful accounts 550,000
Inventory 650,000
Total current assets $1,260,000
Property, plant, and equipment
net of depreciation 1,300,000
Total assets $2,560,000
Accounts payable $270,000
Salaries payable 80,000
Taxes payable 55,000
Total current liabilities $405,000
Bonds payable 900,000
Total liabilities $1,305,000
Common stock 450,000
Retained earnings 805,000
Total liabilities and stockholders' equity $2,560,000

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Definitions:

Interest Tax Shield

The reduction in income taxes that results from the deductibility of interest expense from taxable income.

Capital Structure

The mix of debt and equity financing a company uses for its operations and growth.

Optimal Capital Structure

Optimal capital structure is the mix of debt, equity, and other financing sources that minimizes a firm's cost of capital and maximizes shareholder value, balancing risk and return.