The Assets and Liabilities of Rocky's Day Spa at December

question 21

Essay

The assets and liabilities of Rocky's Day Spa at December 31 and expenses for the year are listed below.The stockholders' equity was $68,000 ($48,000 in Common Stock and $20,000 in Retained Earnings)at January 1.The shareholders invested in an additional $10,000 of common stock during the year.Net income for the year is $45,625.
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Prepare an income statement for Rocky's Day Spa for the current year ended December 31.

Determine net income using absorption costing.

Calculate and interpret the margin of safety.

Understand and apply the concept of operating leverage.

Evaluate the effects of sales mix changes on overall contribution margin ratio.

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Definitions:

Subsidiary's Equipment

Assets like machinery and tools owned by a subsidiary, which is a company controlled by another parent company.

Consolidation

The process of combining the financial statements of a parent company with those of its subsidiaries, presenting the financial results as if the group of companies was a single entity.

Long-Term Debt

Borrowings and other financial obligations that are due for repayment beyond the next 12 months, usually including bonds, loans, and lease obligations.