Selected financial ratios computed from Tanner’s financial statements are given

Question

Selected financial ratios computed from Tanner’s financial statements are given below:

The interest expense on the income statement relates to the bonds payable; the amount of bonds outstanding did not change throughout the year.

There were no changes in the number of shares of common stock outstanding during the year.

Compute the missing amounts on the company's financial statements. (Input all amounts as positive values. Round your final answers to the nearest whole dollar amount.)

Explanation / Answer

Tanner Company Income Statement For the Year Ended December 31 Particulars Amount in Dollars Note number   Sales $                          47,00,000.00   Cost of goods sold $                          29,02,500.00 8   Gross margin $                          17,97,500.00   Selling and administrative expenses $                          14,87,500.00 Gross margin - Net operating income   Net operating income $                            3,10,000.00   Interest expense $                               62,000.00   Net income before taxes $                            2,48,000.00   Income taxes (40%) $                               99,200.00   Net income $                            1,48,800.00 Tanner Company Balance Sheet Dec-31 Assets Amount Note number   Current assets:         Cash 37500 11         Accounts receivable, net 257500 10         Inventory 205000 7   Total current assets 500000   Plant and equipment, net 626000 Total assets - Total current assets   Total assets 1126000 Liabilities Amount        Note Number        Current liabilities 250000        Bonds payable, 10% 620000 5   Total liabilities 870000   Stockholders' equity:        Common stock, $2.70 par value 108000 40000*2.70 563844        Retained earnings                                1,48,000.00 Total liabilities and stake holders equity - Total liabilities - common stock   Total stockholders' equity   Total liabilities and stockholders’ equity 1126000 Working notes Sl No Particulars Amounts in Dollars 1 Times of interest earned = 5 Interest = 62000 Times of interest earned = Earnings before interest and tax Interest expenses 5 = Earnings before interest and tax 62000 Earnings before interest and tax 62000 * 5 Earnings before interest and tax 310000 2 Net operating income 310000 Interest expenses 62000 Net income before taxes 310000 - 62000 Net income before taxes 248000 Income tax 40% 248000 * 40% 3 Income tax 40% 99200 4 Net income 248000 - 99200 Net income 148800 5 Bonds payable = Interest expenses / interest rate percentage Bonds payable = 62000 / 10% Bonds payable = 620000 6 Current ratio = 2 Current ratio = Current assets / Current liabilities 2 = Current assets / 250000 Current assets = 2* 250000 Current assets = 500000 7 Acid test ratio Total current assets - Closing Inventory Current liabilities 1.18 = 500000 - Closing Inventory 250000 500000 - Closing Inventory 250000* 1.18 500000 - Closing Inventory 295000 Closing Inventory = 500000 - 295000 Closing Inventory = 205000 8 Inventory turnover ratio = 9 Inventory turnover ratio = Cost of goods sold / Average inventory Average inventory = Opening inventory + Closing inventory / 2 Average inventory = 440000 + 205000 / 2 Average inventory = 322500 9 = Cost of goods sold / 322500 Cost of goods sold = 322500 * 9 Cost of goods sold = 2902500 9 Acid test ratio Total current assets - Inventory Current liabilities 1.18 = 500000 - Inventory 250000 500000 - Inventory 250000* 1.18 500000 - Inventory 295000 Inventory = 500000 - 295000 Inventory = 205000 10 Accounts receivable turnover = Turnover / Average accounts receivable 16 = 4700000 / Average accounts receivable Average accounts receivable = 4700000 / 16 Average accounts receivable = 293750 Average accounts receivable = Opening accounts receivable + Closing accounts receivable / 293750 = 330000 + Closing accounts receivable / 2 293750 * 2 = 330000 + Closing accounts receivable 587500 330000 + Closing accounts receivable Closing accounts receivable = 587500 - 330000 Closing accounts receivable = 257500 11 Cash closing balance = Total current assets - Closing inventory - Closing debtors Cash closing balance = 500000 - 205000 - 257500 Cash closing balance = 37500 12 Return on total assets = Net income / Average total assets 10 % = 148800 / Average total assets Average total assets = 148800 / 10% Average total assets = 1488000 Average total assets = Opening assets + Closing assets / 2 1488000 1850000 + Closing assets / 2 1488000 * 2 1850000 + Closing assets 2976000 1850000 + Closing assets Closing Total assets = 2976000 - 1850000 13 Closing Total assets = 1126000 14 Debt equity ratio = 0.87 Debt equity ratio = Debt / Equity 0.87 = 620000 / Equity Equity = 620000 / 0.87 Equity = 712643.6782 Equity = Common stock + retained earnings 712643.70 = Common stock + 148800 Common stock = 712643.70 - 148800 15 Common stock = 563843.7 16 Earning per share = 3.72 Earning per share = Earnings available to common share holders / Number of shares outstanding 3.72 = 148800 / Number of shares outstanding Number of shares outstanding = 148800 / 3.72 Number of shares outstanding = 40000 40000*2.70 108000

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