Financial Statement Effects of Deferred Taxes

Tyler Corporation’s statement of operations is summarized below (dollars in thousands):

2000

1999

1998

Net sales

$357,850

$282,403

$286,206

Costs and expenses:

Cost of sales

256,195

221,024

223,826

Selling, general, and

administrative expense

103,402

57,972

55,667

Interest expense, net

3,820

487

608

Total costs and expenses

363,417

279,483

280,101

Income (loss) before income tax (benefit)

(5,567)

2,920

6,105

Income tax (benefit)

Current

(859)

2,649

4,051

Deferred

(7)

(1,067)

(1,181)

(866)

1,582

2,870

Income (loss) before cumulative changes

(4,701)

1,338

3,235

Cumulative effect of changes in

accounting principles

(3,601)

Net income (loss)

$ (4,701)

$ (2,263)

$ 3,235

Required

1. Explain the item “Income tax (benefit).” How can income tax be positive?

That is, how can income tax be deducted from income before tax in 1998 and 1999, and added in 2000?

2. Calculate the following ratios for 2000 and 1999:

a. Operating income.

b. Net income.

c. ROE. Assume that average stockholders for 2000 and 1999 are $114,000 and $117,000 (dollars in thousands). Note: You may want to take out nonrecurring items before calculating the ratios.

3. Evaluate Tyler’s performance during 1999 and 2000.

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