[Talia59]

Carlita Company Income Statement for Year Ending Dec 31 2004

Sales... 120,000
Less:COGS... 90,000
GrossMargin... 30,000
Less:OpExpense... 10,000
OpIncome... 20,000
Less:InterestExp... 2,000
IncomeB4Tax... 18,000
Less:taxExpense... 6,000
NetIncome... $12,000

1)During 2004, Carlita's competitor Farside had double the sales of Carlita, but it also earned a
gross margin of $30,000. Farside's 2004 gross margin percentage was:
A. 12.5%
B. 25%
C. 50%
D. Insufficient information; cannot be calculated

*** My Answer: A because Farsides COGS must = 210,000 so their gross margin % = (rev-cogs)/revs = (240,000-210,000)/240,000 = .125 = 12.5%

2)Carlita began 2004 with a retained earnings account balance of $132,000. During 2004, itdeclared and paid dividends of $5,000. Its December 31, 2004 retained earnings account
balance is:
A. $120,000
B. Cannot be calculated
C. $132,000
D. $139,000

***My answer: D because (RE = Beg RE + NetIncome -Dividends ) so RE = 132,000 (beg re stated in question) + 13,000 (net income listed income statement) -5,000(dividend stated in the question) = $139,000

3) Carlita began 2004 with an interest payable account balance of $13,000. During 2004, it paid $5,000 in interest to its lenders. On December 31, 2004, its interest payable account
balance is:
A. $10,000
B. Cannot be calculated
C. $15,000
D. $13,000

***My answer: B because we are told what the interest payable account balance is at the beginning of the year but we are not told if that balance changes throughout the year (ie did the company take out additional short term loans). I'm not 100% on my answer here so if someone could take a look and lend their thought it would be much appreciated thanks!