Du Pont method for calculating return on investment

1. Why might a company report income differently for internal and external users? Is this ethical?

2. How is return on investment for a division determined? Why is this information important?

3. What is the Du Pont method for calculating return on investment? What is the advantage of this method?

These accounts are from the Decker Company. Show how this information is presented on a multistep income statement.

Cost of goods sold                                           $110,000

Sales                                                                      305,000

Selling expenses                                              75,000

Administrative expenses                              55,000

Depreciation expense                                   40,000

Loss on sale of equipment                           18,000

Sales returns                                                      10,000

Hora Sporting Goods decided to sell its children’s toy division during 2010. The following relevant information is available. Use this information to determine the income (loss) from operations of the division and the income (loss) upon disposal of the division.

Gain from operations of toy division                                       $800,000

Loss on disposal of toy division                                                  500,000

Effective tax rate                                                                             30%



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