3-6. (Working with an income statement and balance sheet) Prepare a balance shee

Question

3-6. (Working with an income statement and balance sheet) Prepare a balance sheet and income statement for the Warner Company from the following scrambled list of items a. Prepare a common-sized income statement and common-sized balance sheet. Interpret your findings. Depreciation expense Cash Long-term debt Sales Accounts payable Marketing, and general, and administrative expenses Buildings and equipment Notes payable Accounts receivable Interest expense Accrued expenses Common stock Cost of goods sold Inventory Taxes Accumulated depreciation Prepaid expenses Taxes payable Retained earnings $66,000 225,000 334,000 573,000 102,000 79,000 895,000 75,000 153,000 4,750 7,900 289,000 297,000 99,300 50,500 263,000 14,500 53,000 262,900

Explanation / Answer

WARNER COMPANY INCOME STATEMENT Sales $573,000 Less : Cost of Goods Sold $297,000 Gross Profit $276,000 Less : Operating Expenses Marketing and general and administrative expenses $79,000 Depreciation $66,000 Interest Expense $4,750 $149,750 Operating profit before taxes $126,250 Less : Taxes $50,500 Net Income $75,750 WARNER COMPANY BALANCE SHEET ASSETS Cash $225,000 Accounts Receivable $153,000 Inventory $99,300 Prepaid Expenses $14,500 Total Current Assets $491,800 Buildings and Equipment $895,000 Less : Accumulated Depreciation $263,000 $632,000 Total Assets $1,123,800 LIABILITIES Accounts Payable $102,000 Notes Payable $75,000 Accrued expenses $7,900 Taxes Payable $53,000 Total Current Liabilities $237,900 Long Term Debt $334,000 Stockholders Equity Common Stock $289,000 Retained Earnings $262,900 Total Liabilities and stockholders equity $1,123,800 Net Working Capital Current assets/Current Liabilities $491800/$237900 2.1 Operating Working Capital Current assets/Current Liabilities-Short term debt $491800/$237900-$75000 3.0 Debt Ratio Total Liabilities/Total assets ($237900+$334000)/$1123800 0.51 From analyzing the Balance sheet, it can be seen that the company is highly liquid, company has lower current liabilities as compared to its current assets which means the company is able to pay off its short term obligations The company has as twice of current assets as compared to current liabilities Almost half of the companies assets are financed by debt which shows that the company is solvent

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