Recast Frosty Footwear's income statements for the last two years considering the potential income statement adjustments under the income approach to business value.  Calculate the Non-Recasted and Recasted EBITDA.

  
 

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Exhibit 1: Frosty Footwear Inc. Income Statements for Years 2005-2007 Sales Units Sold Cost of Goods Sold Material Direct Labor Rent Allocation Depreciation Allocation Other Total Cost of Goods Sold Gross Profit Operating Expenses Owners/Mgt Compensation CEO Bonus Compensation Salaries & Wages Professional Fees Rent Allocation Commissions Bad Debts Advertising & Promotion Trade Shows Research Depreciation Allocation Amortization--Purchase Debt Interest Other Expense Total Operating Expenses Operating Profit $ 2,248,511 41,300 2007 $ EA 771,007 251,120 25,719 11,131 77,157 $ 1,112,377 1,136,134 138,238 23,900 22,331 47,422 23,912 122,089 32,551 104,310 25,162 4,008 1,995 12,600 107,534 367,186 1,033,238 79,139 2006 $ 1,789,429 30,172 $ 596, 194 185,736 26,921 12,434 62,723 884,008 $ 905,421 151,000 4,270 29,395 99,177 24,447 154,430 0 74,302 25,184 24,582 2,814 12,600 19,517 264,125 885,843 19,578 2005 $ 2,050,742 31,800 693,945 207,823 18,374 19,110 95,798 1,035,050 $ 1,015,692 133,000 20,327 139,523 45,131 20,793 71,815 14,000 94,304 29,021 14,224 3,901 12,600 42,310 210,169 851,118 $164,574 Exhibit 5: Projected Income Statements for Years 2008-20010 Sales Cost of Goods Sold Material Direct Labor Rent Allocation Depreciation Allocation Other Total Cost of Goods (51%) Gross Profit Operating Expenses Owners/Mgt Compensation CEO Bonus Compensation Salaries & Wages Professional Fees Rent Allocation Commissions Bad Debts Advertising & Promotion Trade Shows Research Depreciation Allocation Amortization--Purchase Debt Interest Other Expense Total Operating Expenses (36%) Operating Profit 2008 $2,600,000 910,000 296,000 26,000 17,770 100,230 1,350,000 $1,250,000 150,000 32,500 24,500 10,000 24,000 143,770 26,140 120,000 26,000 15,000 3,230 12,600 117,630 219,630 925,000 $325,000 2009 $3,000,000 1,030,000 335,000 26,000 17,950 123,050 1,532,000 180,000 37,500 27,000 10,000 24,000 165,000 30,000 138,000 28,000 15,000 4,050 12,600 134,955 286,895 1,093,000 2010 $1,468,000 $1,723,000 $375,000 $3,500,000 1,195,000 390,000 26,000 19,800 146,200 1,777,000 220,000 45,000 29,700 10,000 24,000 191,345 34,790 160,000 30,000 15,000 4,200 12,600 156,548 339,817 1,273,000 $450,000 Note: For years 2011 and 2012, sales were projected to grow by 10% per year and the cost percentages were projected to stay the same. Frosty Footwear, Inc. Recasted Income Statements for 2006 & 2007 Operating Profit Recasting Adjustments: Owners/Mgt Compensation CEO Bonus Compensation Salaries & Wages Professional Fees Rent Allocation Commissions Bad Debts Advertising & Promotion Trade Shows Research Depreciation Allocation Amortization--Purchase Debt Interest Other Expense Earnings Before Taxes Income Taxes (40) Earnings After Taxes EBITDA: Recasted EBITDA: Not Recasted: EBITDA: Not Recasted $ 2007 79,139 80,000 7,914 8,331 10,422 23,912 122,089 22,485 104,310 25,162 4,008 1,995 12,600 107,534 35,000 565,762 546,615 218,646 $ 327,969 $ $ $ 2006 19,578 80,000 1,958 29,395 10,177 24,447 154,430 17,894 74,302 25,184 24,582 2,814 12,600 19,517 35,000 512,300 393,121 157,248 235,873 Exhibit 1: Frosty Footwear Inc. Income Statements for Years 2005-2007 Sales Units Sold Cost of Goods Sold Material Direct Labor Rent Allocation Depreciation Allocation Other Total Cost of Goods Sold Gross Profit Operating Expenses Owners/Mgt Compensation CEO Bonus Compensation Salaries & Wages Professional Fees Rent Allocation Commissions Bad Debts Advertising & Promotion Trade Shows Research Depreciation Allocation Amortization--Purchase Debt Interest Other Expense Total Operating Expenses Operating Profit $ 2,248,511 41,300 2007 $ EA 771,007 251,120 25,719 11,131 77,157 $ 1,112,377 1,136,134 138,238 23,900 22,331 47,422 23,912 122,089 32,551 104,310 25,162 4,008 1,995 12,600 107,534 367,186 1,033,238 79,139 2006 $ 1,789,429 30,172 $ 596, 194 185,736 26,921 12,434 62,723 884,008 $ 905,421 151,000 4,270 29,395 99,177 24,447 154,430 0 74,302 25,184 24,582 2,814 12,600 19,517 264,125 885,843 19,578 2005 $ 2,050,742 31,800 693,945 207,823 18,374 19,110 95,798 1,035,050 $ 1,015,692 133,000 20,327 139,523 45,131 20,793 71,815 14,000 94,304 29,021 14,224 3,901 12,600 42,310 210,169 851,118 $164,574 Exhibit 5: Projected Income Statements for Years 2008-20010 Sales Cost of Goods Sold Material Direct Labor Rent Allocation Depreciation Allocation Other Total Cost of Goods (51%) Gross Profit Operating Expenses Owners/Mgt Compensation CEO Bonus Compensation Salaries & Wages Professional Fees Rent Allocation Commissions Bad Debts Advertising & Promotion Trade Shows Research Depreciation Allocation Amortization--Purchase Debt Interest Other Expense Total Operating Expenses (36%) Operating Profit 2008 $2,600,000 910,000 296,000 26,000 17,770 100,230 1,350,000 $1,250,000 150,000 32,500 24,500 10,000 24,000 143,770 26,140 120,000 26,000 15,000 3,230 12,600 117,630 219,630 925,000 $325,000 2009 $3,000,000 1,030,000 335,000 26,000 17,950 123,050 1,532,000 180,000 37,500 27,000 10,000 24,000 165,000 30,000 138,000 28,000 15,000 4,050 12,600 134,955 286,895 1,093,000 2010 $1,468,000 $1,723,000 $375,000 $3,500,000 1,195,000 390,000 26,000 19,800 146,200 1,777,000 220,000 45,000 29,700 10,000 24,000 191,345 34,790 160,000 30,000 15,000 4,200 12,600 156,548 339,817 1,273,000 $450,000 Note: For years 2011 and 2012, sales were projected to grow by 10% per year and the cost percentages were projected to stay the same. Frosty Footwear, Inc. Recasted Income Statements for 2006 & 2007 Operating Profit Recasting Adjustments: Owners/Mgt Compensation CEO Bonus Compensation Salaries & Wages Professional Fees Rent Allocation Commissions Bad Debts Advertising & Promotion Trade Shows Research Depreciation Allocation Amortization--Purchase Debt Interest Other Expense Earnings Before Taxes Income Taxes (40) Earnings After Taxes EBITDA: Recasted EBITDA: Not Recasted: EBITDA: Not Recasted $ 2007 79,139 80,000 7,914 8,331 10,422 23,912 122,089 22,485 104,310 25,162 4,008 1,995 12,600 107,534 35,000 565,762 546,615 218,646 $ 327,969 $ $ $ 2006 19,578 80,000 1,958 29,395 10,177 24,447 154,430 17,894 74,302 25,184 24,582 2,814 12,600 19,517 35,000 512,300 393,121 157,248 235,873

Answer rating: 100% (QA)

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