Reference: 14-01
Financial Statements for Larned Company Appear Below:
Larned

question 16

Multiple Choice

Reference: 14-01
Financial statements for Larned Company appear below:
Larned Company
Balance Sheet
December 31, 20X6 and 20X5 (dollars in thousands) $$\begin{array} { | c | l | l | } \hline & 20 X 6 & 20 \times 5 \\\hline \text { Current assets: } & & \\\hline \text { Cash and marketable securities } & \$ 130 & \$ 100 \\\hline \text { Accounts receivable, net } & 150 & 130 \\\hline \text { Inventory } & 100 & 100 \\\hline \text { Prepaid expenses } & 20 & 20 \\\hline \text { Total current assets } & 400 & 350 \\\hline \text { Noncurrent assets: } & & \\\hline \text { Plant \& equipment, net } &{ 1,640 } & 1,600 \\\hline \text { Total assets } & \underline { \$ 2,040 } & \underline { \$ 1,950 } \\\hline & & \\\hline \text { Current liabilities: } & & \\\hline \text { Accounts payable } & \$ 290 & \$ 280 \\\hline \text { Accrued liabilities } & \underline { 110 } & 80 \\\hline \text { Total current liabilities } & 400 & 360 \\\hline \text { Stockholders' equity: } & & \\\hline \text { Preferred stock, \$20 par, 10\% } & 120 & 120 \\\hline \text { Common stock, \$10 par } & 660 & 690 \\\hline \text { Retained earnings } & 860 & 780 \\\hline \text { Total stockholders' equity } & { 1,640 }& { 1,590 } \\\hline \text { Total liabilities \& stockholders' equity } & \underline { \$ 2,040 } & \underline { \$ 1,950 } \\\hline\end{array}$$ Larned Company
Income Statement
For the Year Ended December 31, 20X6 (dollars in thousands) $$\begin{array} { | l | r | } \hline \text { Sales (all on account) } & \$ 2,930 \\\hline \text { Cost of goods sold } & 2,050 \\\hline \text { Gross margin } & 880 \\\hline \text { Operating expenses } & 350 \\\hline \text { Net operating income } & 530 \\\hline \text { Interest expense } & 40 \\\hline \text { Net income before taxes } & 490 \\\hline \text { Income taxes (30\%) } & 147 \\\hline \text { Net income } & \$ 343 \\\hline\end{array}$$ Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160.
Included in operating expenses was depreciation expense of $20,000. No non-current assets were sold.
-The non-current asset section of a business's balance sheet is below. $$\begin{array} { | l | l | l | } \hline & \begin{array} { l } \text { End of } \\\text { Current } \\\text { Year }\end{array} & \begin{array} { l } \text { End of } \\\text { Prior Year }\end{array} \\\hline \text { Equipment } & \$ 50,000 & \$ 60,000 \\\hline \text { Less accumulated depreciation } & \underline { 41,000 } & \underline { 40,000 } \\\hline & \underline { \underline { \$ 9,000 } } & \underline { \underline { \$ 20,000 } } \\\hline\end{array}$$ These were the only depreciable assets owned by the business. During the current year the business sold equipment which it had purchased five years previously at a cost of $10,000. The accumulated depreciation on the equipment sold was $8,000 and the cash received from the sale was $3,000. There were no additions of equipment during the year. What was the depreciation expense recorded during the current year?

• A)$9,000
• B)$1,000
• C)$8,000
• D)Cannot be determined with the information provided

Understand how operating decisions affect net operating income and break-even points.

Understand the concept of variable costing and its calculation.

Understand the concept of absorption costing and its calculation.

Calculate and interpret the unit product cost under both variable and absorption costing methods.

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Definitions:

Average Capital

The mean amount of capital invested or employed in a business or project over a certain period, used to assess financial efficiency.

Years with Partnership

The duration of time an individual has been involved or engaged in a business partnership.

Profit Allocation

The process of dividing the profits of a company among its stakeholders, such as shareholders, employees, or departments.