Use This Balance Sheet and Income Statement for the First

question 42

Multiple Choice

Use this balance sheet and income statement for the first year of operations for Layton Novelties,Inc.to answer the following question.Use ending balances whenever average balances are required for computing ratios. $\begin{array}{c} \text {Layton Novelties. Inc.}\\ \text {Income Statement}\\ \text {For the Year Ended December 31, 2010}\\\begin{array}{llr} \text { Net sales } &\$80,000\\ \text { Costs of goods sold } &32,000\\ \text { Gross margin } &\$48,000\\ \text { Operating expenses} &12,000\\ \text {Income before income taxes } &\$36,000\\ \text { Income taxes } &14,400\\ \text { Net income} &\$21,600\end{array}\end{array}$

The current ratio for Layton Novelties is

• A) 1.75.
• B) .57.
• C) 1.4.
• D) 2.0.

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Definitions:

Profit-Maximizing Output

The production level at which a business attains its greatest possible earnings.

Higher Prices

A situation where the cost of goods or services increases, often due to factors such as inflation, increased demand, or higher production costs.

Monopolists

Single sellers in a market who have significant control over the price and supply of a particular product or service.

Income Redistribution

The governmental policy or action of adjusting the distribution of income, usually through taxation and welfare programs, to achieve a fairer society.