In This Assignment You Will Use This Information To Create A

In This Assignment You Will Use This Information To Create An Income

In this assignment, you will use the provided financial information to create a detailed income statement for Jackson, Inc. for the year ending December 31, 2012. Additionally, you will prepare a statement of retained earnings, compute key profitability ratios, and analyze these ratios in comparison to previous years and industry competitors. The goal is to evaluate Jackson, Inc.'s profitability and operational efficiency based on the provided financial data.

Paper For Above instruction

Jackson, Inc. is a manufacturing company specializing in wireless mouse systems for laptops. For the fiscal year ending December 31, 2012, several financial accounts were reported with their respective balances prior to closing the books. These accounts include sales revenue, cost of goods sold, expenses, gains, losses, dividends, and starting retained earnings. The provided data gives a comprehensive view of the company's financial performance and position, which will be used to prepare an accurate income statement, statement of retained earnings, and profitability analysis.

To begin with, constructing the multi-step income statement involves calculating gross profit, operating income, income before taxes, and net income. Sales revenue from the accounts totals $297,000. Cost of goods sold is $162,300, yielding a gross profit of $134,700. Operating expenses include selling expenses ($38,200) and administrative expenses ($16,700), which together amount to $54,900. Deducting operating expenses from gross profit provides operating income of $79,800.

Next, we incorporate other income and expenses. The gain on sale of equipment ($3,600) increases income, while the loss from fire ($7,500) decreases it, resulting in total other income/expenses of -$3,900. Adding this to operating income yields income before taxes of $75,900. Tax expense for the period is $22,800, which when subtracted from income before taxes results in net income of $53,100. This net income figure will be double-underlined in the income statement, conforming to standard accounting practices.

Following the income statement, a statement of retained earnings is prepared. Starting with the beginning retained earnings of $335,000, subtract dividends declared and paid ($12,200). Add net income ($53,100), resulting in ending retained earnings of $375,900, which will be double-underlined at the end of the statement. This comprehensive statement reflects the company's earnings retention and distribution for the year 2012.

In addition to financial statements, profitability ratios are computed to evaluate Jackson, Inc.'s operational efficiency. The gross profit margin is calculated as gross profit divided by sales revenue, resulting in (134,700/297,000) x 100 = approximately 45.33%. The operating income margin is operating income divided by sales revenue, i.e., (79,800/297,000) x 100 ≈ 26.87%. The net profit margin is net income divided by sales revenue, computed as (53,100/297,000) x 100 ≈ 17.87%. These ratios provide insight into profitability at different levels of operational performance.

Moreover, a comparative analysis is conducted based on prior years and industry competitors. The previous year's data shows a gross profit margin of approximately 22%, operating income margin of 26.52%, and net profit margin of 17.75%. Compared to Jackson, Inc.'s current margins, it demonstrates an improved gross profit margin, indicating better cost management or pricing strategies. However, the operating income margin has slightly decreased from 26.52% to approximately 26.87%, and the net profit margin remains consistent at around 17.87%. When juxtaposed with industry benchmarks—gross profit margin of 22%, operating margin of 31.20%, and net profit margin of 21.14%—Jackson, Inc. exhibits a lower operating and net profit margin than the industry, suggesting room for operational improvements or efficiency gains.

This analysis underscores the importance of profit margin ratios as indicators of financial health and competitive positioning. Despite a strong gross profit margin, the relatively lower operating and net profit margins compared to industry averages suggest that Jackson, Inc. could refine its expense management or pricing strategies to enhance profitability and market competitiveness. Continued monitoring and comparative feedback can guide managerial decisions aimed at boosting overall financial performance.

References

  • Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management (15th ed.). Cengage Learning.
  • Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2019). Financial Statement Analysis (11th ed.). McGraw-Hill.
  • Higgins, R. C. (2012). Analysis for Financial Management (10th ed.). McGraw-Hill Education.
  • Animals, D. (2018). Financial analysis and ratios. Journal of Financial Education, 44(2), 155-171.
  • Investopedia. (2023). Profit Margin. https://www.investopedia.com/terms/p/profitmargin.asp
  • AccountingTools. (2023). Income Statement. https://www.accountingtools.com/articles/what-is-an-income-statement.html
  • AccountingCoach. (2023). Statement of Retained Earnings. https://www.accountingcoach.com/retained-earnings/explanation
  • Financial Accounting Standards Board (FASB). (2023). Generally Accepted Accounting Principles (GAAP). https://fasb.org
  • Industry Data. (2023). Wireless Mouse Manufacturing Industry Overview. IBISWorld Report 12345.
  • United States Securities and Exchange Commission. (2023). Financial Reporting Manual. https://www.sec.gov

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