Riordan_Industries_Week_3

Riordan Industries Week 3 The income statement of Riordan Industries is a short and a deception simple looking form. The form is setup so that it is easy to understand so decision makers con easily read the statement and make decisions quickly and accurately using it. The statement all so has to have all in the information that is needed to evaluate the financial health of the company and make perceptions of the company’s future. The specific time period that the income statement is prepared for is the year of 2004. For most businesses the financial years starts and end with the normal year Jan 1 to Dec 31. The statement needs to be the same time period for each year. This is so that the statements are consistent and can be easily compared. Using the same time period every years keeps companies from only reporting the good parts of the years on the statement they have to report the entire year both the good and bad parts. At the top of the statement is Roirdan Industries income or its revenue. Revenue is the income that a company’s generates from the company’s primary business activity. For Roirdan Industries their Primary business activity is the sale of plastics. In the income section of the statement are the line titles for sales and direct cost of goods sold. In the line for Sales is the amount of $549,144. This amount represents the amount that Riordan Industries made selling their good before the cost of manufacturing and shipping is subtracted. Under the line the Sale line is the Direct Cost of Goods Sold line. The amount in this line is $11,604 this is the amount that is cost Roirdan Industries to perches the raw materials, their manufacturing cost, and their cost to ship the goods to the markets. Since the money brought into Roirdan Industries is listed as an asset and the money that was spent to produce goods are listed as a liability the $11,604 in the Direct Cost of Goods Sold is subtracted from the $549,144 of Sales. The next section of the income statement is the expenses. Expenses are the legitimate cost doing business. Roirdan Industries’ income statement has many of the common expenses pay roll, research & development and administrative costs. Common expenses are the day to day operating expenses of a company. Other expenses are Depreciation and, marketing & sales. The total depreciation expense for Roirdan Industries in 2004 is $4,176. Depreciation is the term use to describe the write-off process for Property, plant and equipment assets that has limited useful life spans. To determent the depreciation of the PP&E assets the estimated value of the PP&E assets at the end of it useful life is subtracted for the original cost of the PP&E their product is the depreciable cost. The Depreciable cost is divided by the useful life of the PP&E give you the depreciation expense per year for that PP&E. In the income statement all the Depreciation expenses for all the companies PP&E are added together. While land is a PP&E asset it does not have a limited useful life so it does not depreciate. The value of Roirdan Industries PP&E assets deceased on paper by $4,176. Most PP&E assets loss the largest part of the value in the first year, senesce accounting practices assume that the company will use the PP&E for its useful life the depreciation expense is spared evenly though out the PP&E’s useful life. All expenses are added together to get the total expenses. The net income is found by subtracting revenues from the total expenses. Roirdan Industries income statement calls this line Profit before Taxes the amount on this line is not always a profit if the expense are greater than the revenues this line could be called Losses before taxes. The net income is listed before interest owed or earned is added. Roirdan Industries lists interest expense of $1,301 the interest was not list in the income part of the income statement because it was not generated from the company’s primary business activity. If Roirdan Industries would have reserved an interest payment from a bank the Interest income would have been add in the same place. In the same way if Roirdan Industries would have made money by selling bonds, or shears that it had bought in another company because the income did not come from the manufacturing and selling of plastics it is not counted as revenue. As corporation Roirdan industries has to pay taxes. Corporation in the United States are taxed on a graduated scale. This means that the more the corporation makes the higher it tax rate. Roirdan made a net income of $224,669 so the paid $56,772 in taxes. Roirdan Industries made over $100,000 and under $335,000 so they were taxed at a 39% tax rate. Multiple net income by the tax rate to fine the taxes incurred. After Taxes incurred and interest expense are subtracted for the net income for Roirdan Industries is $166,569. A short and easy to read form the income statement for Roirdan Industries show a snapshot of the company financial health. Using the same time period and accounting practices every years will show if the company is on the rise of ready to fall.