Spence Resources Inc.’s December 31 incomplete balance sheet information follows

Question

Spence Resources Inc.’s December 31 incomplete balance sheet information follows along with additional information:

*47,200 shares were issued and outstanding for all three years.

Required:
1. Prepare a three-year comparative balance sheet for Spence Resources Inc. (Enter all amounts as positive values.)

2. To evaluate the company’s profitability, calculate the ratios for each year shown in the following schedule and determine whether the change was favourable or unfavourable. (Round EPS and the final answers to 2 decimal places.)

2017 2016 2015   Accounts payable $362,620    $212,400    139,600      Accounts receivable, net 262,370    177,166    138,610      Cash 73,370    99,284    103,890      Common shares* 472,000    472,000    472,000      Long-term notes payable due 2020 281,500    295,500    239,500      Inventory 320,700    239,500    156,900      Plant assets, net 794,000    731,000    659,600     Prepaid expenses 27,840    27,200    11,880   

Explanation / Answer

Spence Resources inc

Balance Sheet

Dec. 31

2,017

2,016

2,015

Assets

Current Assets

Accounts Receivables

$262,370

$177,166

$138,610

Cash

$73,370

$99,284

$103,890

Inventory

$320,700

$239,500

$156,900

Prepaid Expenses

$27,840

$27,200

$11,880

Total Current Assets

$684,280

$543,150

$411,280

Plant Assets net

$794,000

$731,000

$659,600

Total Assets

$1,478,280

$1,274,150

$1,070,880

Liabilities

Account Payables

$362,620

$212,400

$139,600

Long term note payables due

$281,500

$295,500

$239,500

Cash dividend

$108,560

$94,400

$0

Total Liabilities

$752,680

$602,300

$379,100

Equity

Common Shares

$47,200

$47,200

$47,200

Issued & Outstanding @$10

$10

$10

$10

Total Equity

$472,000

$472,000

$472,000

Total Liabilities And Equity

$1,224,680

$1,074,300

$851,100

b)

Calculation of Profitability and Ratio

2017

2016

Favourable/Unfavour

(a) Return on common shares Equity

47.96%

29.75%

Favourable

(b) Price Earning

6.24

10.64

Unfavourable

(c ) Dividend yield

5.00%

4.44%

Favourable

Notes:

In the question balance sheet information are not completed and profit loss of the company also not given so due to incomplete information balance sheet does not matched,

For calculation of ratio net income is also required which is not given in question,

So we need to ascertain the net income of company for solving the question, as we know that the diff between Total liabilities and shareholder’s equity is retained earning or Total Assets less liabilities and shareholder’s equity is retained earning,

The earning of 2017 is diff amount $1478280-1224680=$253600

Net income of 2017 is Retained Earning+ Cash dividend of prev. year =$253600+94400=$348000

Net income of 2016= $1274150-1074300= $199850

Calculation of Return on common shares on equity

=Net Income/Shareholders Equity

Shareholders Equity= Common Stock+Retained Earning

2017                       =348000/(472000+253600) *100=47.96%

2016                       ==199850/(472000+199850)*100= 29.75%

Price earning=Market value per share/Earning per share

2017                       =46/7.37= 6.24

2016                       =45/4.23= 10.64

Earning Per share= Net income available for Shareholders/no. of shareholders

2017                       348000/47200 =7.37

2016                       =199850/47200=4.23

Dividend Yield=Annual Dividend/Current share price

2017                       =2.3/46*100       =5.00%

2016                       ==2/45*100        =4.44%

               

Spence Resources inc

Balance Sheet

Dec. 31

2,017

2,016

2,015

Assets

Current Assets

Accounts Receivables

$262,370

$177,166

$138,610

Cash

$73,370

$99,284

$103,890

Inventory

$320,700

$239,500

$156,900

Prepaid Expenses

$27,840

$27,200

$11,880

Total Current Assets

$684,280

$543,150

$411,280

Plant Assets net

$794,000

$731,000

$659,600

Total Assets

$1,478,280

$1,274,150

$1,070,880

Liabilities

Account Payables

$362,620

$212,400

$139,600

Long term note payables due

$281,500

$295,500

$239,500

Cash dividend

$108,560

$94,400

$0

Total Liabilities

$752,680

$602,300

$379,100

Equity

Common Shares

$47,200

$47,200

$47,200

Issued & Outstanding @$10

$10

$10

$10

Total Equity

$472,000

$472,000

$472,000

Total Liabilities And Equity

$1,224,680

$1,074,300

$851,100

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