The following information is available about the company: a. All sales during th
ID: 2590879 • Letter: T
Question
The following information is available about the company: a. All sales during the year were on account. b. There was no change in the number of shares of common stock outstanding during the year c. The interest expense on the income statement relates to the bonds payabl le; the amount of bonds outstanding did not change during the year d. Selected balances at the beginning of the current year were Accounts receivable Inventory Total assets $ 250,000 $ 360,000 $1,575,000 e. Selected financial ratios computed from the statements below for the current year are Earnings per share Debt-to-equity ratio Accountsreceivable turnover Current ratio Return on total assets Times interest earned ratio Acid-test ratio Inventory turnover $ 6.48 0.800 20.0 2.30 18% 9.0 1.10 9.0Explanation / Answer
Pepper Industries
Income Statement
For the year ended March 31
Working Notes:
(1) Current Ratio = Current assets / Current Liabilities = 2.30
Acid test ratio = Quick assets / Current Liabilities = 1.10
Difference between the two multiplied by current liabilities gives the amount of year ending inventory = 200,000 * (2.3-1.1) = 240,000
(2) Now Average Inventory = 360,000 + 240,000 / 2 = 300,000
Cost of goods sold = Average Inventory * Inventory Turnover = 300,000 * 9 = 2,700,000
(3) Times interest earned = Net Operating Income / Annual interest expense
So, Net opertaing income = TIE * Interest Expense = 9*54,000 = 486,000
Pepper Industries
Balance sheet
March 31
Working Notes:
(1) No. of shares outstanding = Net Income / EPS = 259,200 / 6.48 = 40,000 shares
Common stock = 40,000 * 2.80 = 112,000
(2) Bonds payable = 54,000 / 10% = 540,000
(3) Average accounts receivable = Net sales / Accounts receivable turnover = 3,900,000 / 20 = 195,000
Total accounts receivables = 195,000 * 2 = 390,000
Accounts receivable at the end = Total - Opening balance = 390,000 - 250,000 = 140,000
(4) Average Total assets = Net Income / Return on total assets = 259,200 / 18% = 1,440,000
Total assets = 1,440,000 * 2 = 2,880,000
Assets at the end = Total - Opening balance = 2,880,000 - 1,575,000 = 1,305,000
(5) Rest amounts are just balancing figures.
Sales $3,900,000 Cost of goods sold 2,700,000 Gross Margin 1,200,000 Selling and Administrative Expenses 714,000 Net Operating income 486,000 Interest expense 54,000 Net Income before taxes 432,000 Income Taxes (40%) 172,800 Net Income 259,200Related Questions
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