Income statements of Ferro Corporation, along with its note 7 on income taxes and selected information from
Question:
Income statements of Ferro Corporation, along with its note 7 on income taxes and selected information from its Form 10-K, are reproduced below:
The following information from Ferro Corporation’s Form 10-K is available:
Required:
a. Recast Ferro’s income statements for Years 5 and 6. Show computations.
b. Identify factors causing income tax expense to differ from 48% of pretax income. Identify any random or unstable factors.
c. What significant changes can you identify in Ferro’s operating policies for Year6?
Transcribed Image Text:
CONSOLIDATED STATEMENT OF INCOME Years Ended December 31, Year 6 and Year 5 S thousands) Year 6 Year 5 266,846 237,333 54,140 8,205 299,678 28,327 Selling and administrative expenses . 58,216 Other income Equity in net earnings of affiliated companies Royalties.. Interest earned Miscellaneous. 1,394 710 1,346 1,490 504 854 1,086 1,761 4,205 Other charges 4,474 1,851 1,448 7,773 24,759 11,133 $ 20,054 13,626 Unrealized foreign currency translation loss4,037 U.S. and foreign income taxes (note 7). . .. . 16,765 Notes to Financial Statements Income tax expense is comprised of the following components ($ thousands) Year 6 U.S. Federal Foreign Total Year 5 U.S. Federal Foreign Total Current.$5,147 $11,125 $16,272 Current...$2,9 Deferred. 353 140 180 (116) 64 Total..$5, $5,500 $11,265 $16,765 Total $3,154 7,979 $11,133 Deferred income taxes were mainly the result of using accelerated depreciation for income tax purposes and straight-line depreciation in the consolidated financial statements. State and local income taxes totaling approximately $750,000 and $698,000 in Year 6 and Year 5, respectively, are included in other (continued,) expense categories. A reconciliation between the U.S. federal income tax rate and the effective tax rate for Year 6 and Year 5 follows: Year 6 Year 5 U.S. federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings of consolidated subsidiaries taxed at rates less than 48.0% 48.0% the U.S. federal income tax rate.... . . . . (5.3) (5.3) Equity in after-tax earnings of affiliated companies 1.4 0.8) Unrealized foreign exchange translation loss...... . ._ .........5.3 Additional U.S. taxes on dividends from subsidiaries and affiliates. .. 0.8 1.0 Investrment tax credit Effective tax rate 45.5% 45.0% Year 6 Year 5 Cost of sales includes ($ thousands) . . . . $15,000 $20,000 ー 7,000 Selling and administrative expenses include ($ thousands) Advertising
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a b Factors causing the effective tax rate to be greater than the statutory rate include the 1 unrealized foreign exchange translation loss and 2 addi...View the full answer
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Related Book For
Financial Statement Analysis
ISBN: 978-0078110962
11th edition
Authors: K. R. Subramanyam, John Wild
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