1.) Explain how a company could have a decreasing gross profitmargin but an increasing operating profit margin.
2.) What is an example of an industry that would need to spend aminimum amount on advertising to be competitive? On research anddevelopment?
3.) Alpha Company purchased 30% of the voting common stock ofBeta Company on January 1 and paid $500,000 for the investment.Beta Company reported $100,000 of earnings for the year and paid$40,000 in cash dividends. Calculate investment income and thebalance sheet investment account for Alpha Company under the costmethod and under the equity method.
4.) Discuss the four items that are included in a company’scomprehensive income.
5.) Explain what can be found on a statement of stockholders’equity.
6.) Why is the bottom line figure, net income, not necessarily agood indicator of a firm’s financial success?
7.) Using the excerpt from the Moon Company’s annual report,calculate any profit measures deemed necessary and discuss theimplications of the profitability of the company.
8.) LA Theatres Inc. has two distinct revenue sources, ticketand concession revenues. The following information from LA TheatresInc. income statements for the past three years is
available:
(inmillions) 2016 2015 2014
Ticketrevenue $1,731 $1,642 $1,120
Concessionrevenue 792 687 411
Totalrevenue $2,523 $2,329 $1,531
Cost of goodssold—tickets $ 951 $ 854 $ 549
Cost of goodssold—concessions 70 69 48
Total cost of goodssold $1,021 $ 923 597
Grossprofit $1,502 $1,406 $ 934
a.) Calculate gross profit margins for tickets and concessionsfor all three years. Calculate an overall gross profit margin forLA Theatres Inc. for all three years.
b.) Analyze the changes in gross profit margin for all threeyears.
9.) Writing Skills Problem:
Income statements are presented for the Elf Corporation for theyears ending December 31, 2016, 2015, and 2014.
Elf Corporation Income Statements for theYears
Ending December 31, 2016, 2015, and 2014
(inmillions) 2016 2015 2014
Sales $700 $650 $550
Cost of goodssold 300 325 275
Grossprofit $350 $325 $275
Operating expenses:
Administrative 100 100 100
Advertising andmarketing 50 75 75
Operatingprofit $200 $150 $100
Interestexpense 70 50 30
Earnings beforetax $130 $100 $ 70
Tax expense(50%) 65 50 35
Netincome $65 $50 $ 35
Required: What a one-paragraph analysis of ElfCorporation’s profit performance for the period.