"8. Prepare in good form an income statement for Franklin Kite Co., Inc. Take yourcalculations all the way to computing earnings per share.Sales ....................................................................................... $900,000Shares outstanding ................................................................. 50,000Cost of goods sold .................................................................. 400,000Interest expense ...................................................................... 40,000Selling and administrative expense ........................................ 60,000Depreciation expense ............................................................. 20,000Preferred stock dividends ....................................................... 80,000Taxes ...................................................................................... 50,0002-8. Solution:Franklin Kite CompanyIncome StatementSales ............................................................... $900,000Cost of goods sold ......................................... 400,000Gross profit................................................ 500,000Selling and administrative expense ............... 60,000Depreciation expense ..................................... 20,000Operating profit ......................................... $420,000Interest expense ............................................. 40,000Earnings before taxes ................................ $380,000Taxes .............................................................. 50,000Earnings after taxes ................................... $330,000Preferred stock dividends .............................. 80,000Earnings available to common stockholders . 250,000Shares outstanding ......................................... 50,000Earnings per share.......................................... $5.00S2-11 9. Lasar Technology, Inc., had sales of $500,000, cost of goods sold of $180,000, selling andadministrative expense of $70,000, and operating profit of $90,000. What was the value ofdepreciation expense? Set this problem up as a partial income statement, and determinedepreciation expenses as the plug figure.2-9. Solution:Lasar Technology, Inc.Sales ............................................................... $500,000Cost of goods sold........................................ $180,000Gross Profit ............................................... $320,000Selling and administrative expense ............... 70,000Depreciation Expense (plug figure) ............... 160,000Operating profit ......................................... $90,000S2-12 10. The Ace Book Company sold 1,500 finance textbooks for $185 each to High TuitionUniversity in 2008. These books cost Ace $145 to produce. Ace spent $10,000 (sellingexpense) to convince the university to buy its books. In addition, Ace borrowed $80,000 onJanuary 1, 2008, on which the company paid 10 percent interest. Both interest and principalof the loan were paid on December 31, 2008. Ace’s tax rate is 25 percent. Depreciationexpense for the year was $15,000.Did Ace Book Company make a profit in 2008? Please verify with an incomestatement presented in good form.2-10. Solution:Ace Book CompanySales (1,500 books at $185 each) .................................277,500Cost of goods sold (1,500 books at $145 each)...........217,500Gross Profit ..............................................................60,000Selling expense .............................................................10,000Depreciation expense ....................................................15,000Operating profit?? ..................................................35,000Interest expense ............................................................8,000Earnings before taxes ...............................................27,000Taxes @ 25% ................................................................6,750Earnings after taxes ..................................................20,250S2-13 11. Carr Auto Wholesalers had sales of $900,000 in 2004 and their cost of goods soldrepresented 65 percent of sales. Selling and administrative expenses were 9 percent ofsales. Depreciation expense was $10,000 and interest expense for the year was $8,000.The firm’s tax rate is 30 percent. a. Compute earnings after taxes. b. Assume the firm hires Ms. Hood, an efficiency expert, as a consultant. She suggeststhat by increasing selling and administrative expenses to 12 percent of sales, sales canbe increased to $1,000,000. The extra sales effort will also reduce cost of goods soldto 60 percent of sales (there will be a larger markup in prices as a result of moreaggressive selling). Depreciation expense will remain at $10,000. However, moreautomobiles will have to be carried in inventory to satisfy customers, and interestexpense will go up to $15,000. The firm’s tax rate will remain at 30 percent. Computerevised earnings after taxes based on Ms. Hood’s suggestions for Carr AutoWholesalers. Will her ideas increase or decrease profitability?2-11. Solution:Carr Auto WholesalersIncome Statementa. Sales ...................................................................$ 900,000 Cost of goods old (65% of sales) ....................... 585,000 Gross Profit....................................................$ 315,000 Selling and administrative expense (9% of sales) .................................................. 81,000 Depreciation ....................................................... 10,000 Operating profit ............................................. 224,000 Interest expense .................................................. 8,000 Earnings before taxes .................................... 216,000 Taxes @ 30% ..................................................... 64,800 Earnings after taxes .......................................$ 151,200S2-14 2-11. (Continued)b. Sales ................................................................... $1,000,000 Cost of goods sold (60% of sales) ..................... 600,000 Gross profit .................................................... 400,000 Selling and administrative expense ....................(12% of sales)............................................... 120,000 Depreciation ....................................................... 10,000 Operating profit ............................................. 270,000 Interest expense .................................................. 15,000 Earnings before taxes .................................... 255,000 Taxes @ 30% ..................................................... 76,500 Earnings after taxes .......................................$ 178,500Ms. Hood’s ideas will increase profits.S2-15 "