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Financial Statement Project The following financial information relates to the past five years of Titus Corporation’s operations: Titus Corporation is happy to announce that it has gained control of its income taxes. They have been reduced each year for several years now. In fact, during the year 2012 income taxes have reached a five-year low of $242,852. Even better, these tax reductions have occurred during a period in which sales have consistently grown. During the year 2012, sales reached a record high of $3,989,784. The cost of goods which were sold during the year was $1,352,983. Operating expenses for the year 2012 were $1,184,656. Interest expense for the same period was $169,200. Management is particularly proud to announce that the company has done so well that even with its strong record of stockholder dividends and the recession it has been able to maintain its debt service by consistently paying down its bonded indebtedness by $60,000 per year and astoundingly even had enough profit to purchase $1,300,000 of new equipment this year. Some of the new programs instituted by senior management this year include promoting a newly revised credit policy which should keep sales strong at the company. Additionally, loss of sales from stock-outs has been virtually eliminated by a new management directive intended to maintain more substantial inventories. Further, selling expenses were increased to $249,716 in the year 2012. All of these decisions were intended to build sales. Management believes that larger inventories will prove profitable in several ways as follows. Purchases discounts will be achieved for purchases of large quantities of raw materials. Interruptions in the production departments which are often caused by uneven materials flow will be reduced or eliminated. And, as mentioned above, sales lost due to stock-outs of finished goods will be eliminated. Inventories as of December 31 of each year are as follows: 2012 2011 2010 2009 2008 Raw Materials 301,090 175,745 49,067 29,612 20,933 Work In Process 158,434 124,800 72,000 23,852 19,893 Finished Goods 310,134 279,600 40,933 30,536 26,741 Total 769,658 580,145 162,000 84,000 67,567 Depreciation and amortization for the year 2012 are as follows: Building Depreciation 2,500 Equipment Depreciation 386,000 Patent Amortization 24,000 During the year 2012, $102,000 was paid for a parcel of land and $350,000 was paid for a building. Additionally, long-term investments which had cost Titus Corporation $50,000 were sold for $75,000. Other December 31, 2012 asset balances were cash $21,626 accounts receivable $1,051,589, and prepaid expenses $36,852. In 2012 senior management negotiated a mortgage with a local bank in the amount of $880,000. Other liability balances at December 31, 2012 were as follows: accounts payable $234,769, accrued operating expenses $48,947, income taxes payable $87,000, and dividends payable $15,000. Bonds payable have already been discussed. No Common Stock was issued or retired during the year 2012. Dividends were declared and paid as follows: 2012 2011 2010 2009 2008 Cash dividends declared 15,000 29,526 332,176 332,890 330,000 Cash dividends paid 15,000 29,526 332,176 332,890 330,000 Use the preceding data to complete the following comparative Income Statement, Retained Earnings Statement, and Balance Sheet. Titus Corporation Comparative Income Statement For the Years Ended December 31, 2008 through 2012 2012 2011 2010 2009 2008 Sales 2,514,000 2,510,288 2,388,010 2,356,534 Cost of Goods Sold 992,534 798,041 746,057 611,452 Gross Profit 1,521,466 1,712,247 1,641,953 1,745,082 Operating Expenses: Depreciation Expense 93,840 76,800 30,480 30,720 Patent Amortization 24,000 24,000 24,000 24,000 Selling Expenses 245,524 198,000 192,000 172,800 General Expenses 525,120 396,000 384,000 345,600 Total Operating Exp. Income from Ops 632,982 1,017,447 1,011,473 1,171,962 Other Income: Gain on Investment Other Expense: Interest Expense 36,000 34,200 30,000 27,600 Income before inc. tax 596,982 983,247 981,473 1,144,362 Income tax 256,801 333,839 348,628 377,640 Net income 340,181 649,408 632,845 766,722 Titus Corporation Retained Earnings Statement For the Years Ended December 31, 2008 through 2012 2012 2011 2010 2009 2008 Retained Earnings at Beginning of Year 2,059,721 1,742,489 1,442,534 1,005,812 Add: Net Income 340,181 649,408 632,845 766,722 Deduct: Dividends (29,526) (332,176) (332,890) (330,000) Retained Earnings at End of Year 2,370,376 2,059,721 1,742,489 1,442,534 Titus Corporation Comparative Balance Sheet December 31, 2008 through 2012 2012 2011 2010 2009 2008 ASSETS Cash 418,927 168,008 192,010 215,999 Accounts Receivable (Net) 252,600 284,982 138,064 58,800 Inventories 580,145 162,000 84,000 67,567 Prepaid Expenses 46,800 65,372 36,446 24,000 Long-Term Investments 89,400 90,000 90,000 90,000 Land 294,000 294,000 294,000 294,000 Buildings 1,320,000 1,471,812 1,276,850 1,049,597 Accum. Depr. Buildings (153,840) (72,000) (37,200) (25,080) Equipment 360,000 306,000 240,000 240,000 Accum. Depr. Equipment (144,000) (132,000) (90,000) (71,640) Patents 456,000 480,000 504,000 528,000 Total Assets 3,520,032 3,118,174 2,728,170 2,471,243 LIABILITIES & EQUITY Accounts Payable 255,536 191,759 126,736 120,061 Accrued Operating expenses 41,160 27,702 25,763 23,186 Income Taxes Payable 87,360 82,992 77,182 69,462 Dividends Payable 12,000 12,000 12,000 12,000 Mortgage Payable 0 0 0 0 Bonds Payable 240,000 300,000 360,000 420,000 Common Stock, $100 par 375,000 300,000 240,000 240,000 Paid-in-Capital, in excess of par 149,600 144,000 144,000 144,000 Retained Earnings 2 ,370,376 2,059,721 1,742,489 1,442,534 Total Liabilities and Equity 3,520,032 3,118,174 2,728,170 2,471,243 Income Statement Balance Sheet Sales ASSETS COGS Cash Gross Profit 0 Accts Rec Inventories Operating Expenses: Prepaid Expenses Depreciation Expense Long-term Investments Patent Amortization Land Selling Expenses Buildings General Expenses Accum Deprec: Buildings Total Operating Expenses 0 Equipment Accum Deprec: Equipment Income from Ops 0 Patents Other Income: Total Assets 0 Gain on Investment LIABILITIES & EQUITY Other Expense: Accounts Payable Interest Expense Accrued Operating Expenses Income before taxes 0 Income Taxes Payable Dividends Payable Income Tax Mortgage Payable Bonds Payable Net Income 0 Common Stock, $100 par Paid-in-Capital, in excess of par Retained Earnings Retained Earnings 0 Beginning RE Total Liabilities & Equity 0 Add: Net Income Deduct: Dividends Year-end RE 0

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