Grants corporation prepared the following two income statements (simplified for illustrative purposes): first quarter second quarter sales revenue $ 11,000 $ 18,000 cost of goods sold beginning inventory $ 4,000 $ 3,800 purchases 3,000 13,000 goods available for sale 7,000 16,800 ending inventory 3,800 9,000 cost of goods sold 3,200 7,800 gross profit 7,800 10,200 expenses 5,000 6,000 pretax income $ 2,800 $ 4,200 during the third quarter, it was discovered that the ending inventory for the first quarter should have been $4,400. required:
1. what effect did this error have on the combined pretax income of the two quarters?
2. which quarter's or quarters' (if any) eps amounts were affected by this error?
3. prepare corrected income statements for each quarter.
4. prepare the schedule to reflect the comparative effects of the correct and incorrect amounts on the income statement.
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Pennewell publishing inc. (pp) is a zero growth company. it currently has zero debt and its earnings before interest and taxes (ebit) are $80,000. pp's current cost of equity is 10%, and its tax rate is 40%. the firm has 10,000 shares of common stock outstanding selling at a price per share of $48.00. refer to the data for pennewell publishing inc. (pp). pp is considering changing its capital structure to one with 30% debt and 70% equity, based on market values. the debt would have an interest rate of 8%. the new funds would be used to repurchase stock. it is estimated that the increase in risk resulting from the added leverage would cause the required rate of return on equity to rise to 12%. if this plan were carried out, what would be pp's new value of operations? a. $484,359 b. $521,173 c. $584,653 d. $560,748 e. $487,805
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Grants corporation prepared the following two income statements (simplified for illustrative purpose...
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