INTERNATIONAL LEGAL ACCOUNTING (Summer Class)12-176 June 5, 2015

5 June 2015

FOREVER COMPANY

Income Statement

For the Year Ended December 31, 2009

Sales P 10,000,000

Less: Sales Discount 200,000

Sales Returns and Allowances 100,000

Net Sales P 9,700,000

Less: Cost of Goods Sold

Beginning Inventory P 300,000

Purchases 5,000,000

Less: Ending Inventory 500,000

4,800,000

Gross Profit P 4,900,000

Less: Distribution Expense

Delivery Expense P 200,000

Salesmen's Commission 400,000Selling and Marketing Salaries and Wages 200,000Depreciation Expense - Sales and Marketing Equipment 100,000

Total Distribution Expense 900,000

Administrative ExpenseAdministrative Salaries and Wages 500,000

Rent Expense 100,000

Insurance Expense 50,000Depreciation Expense - Building and Equipment 150,000

Total Administrative Expense 800,000

Operating Income P 3,200,000

Add: Other Income

Rental Income P 300,000Dividend from San Miguel Corporation 100,000Gain on Sale of Marketable Securities 70,000

Total Other Income 470,000

Less: Other Expenses or Losses

Interest Expense P 150,000

Loss from Typhoon Ondoy 100,000

Loss on Sales of Equipment 50,000

Loss on Expropriation of Land 100,000

Total Other Expenses or Losses 400,000

Net Income Before Tax P 3,270,000

Less: Tax Expense 981,000

NET INCOME P 2,289,000

What does this mean in terms of risks and costs?

The expenses take up almost 40% of its Gross Profits. This is not too alarming. Nonetheless, the company may want to lessen its expenses to boost its income. Only about 22% of the company's revenues were converted to net income.