FSU Daycare, Inc. has the following financial statements data for 2008: Income S
ID: 2820249 • Letter: F
Question
FSU Daycare, Inc. has the following financial statements data for 2008:
Income Statement
Balance Sheet
Sales
$102,500
Cash
$40,000
Cost of Goods
$50,000
Fixed Assets
$55,000
SG&E Expenses
$35,000
Total Assets
$95,000
EBIT
$17,500
Accounts Payable
$12,000
Interest Expense
$2,500
Long-term Debt
$25,000
Taxes
$6,000
Retained Earnings
$28,000
Net Income
$9,000
Paid-in Common Equity
$30,000
Use of financial statements
1.
a.
Compute the firm’s debt ratio and current ratio.
Current Ratio =
Debt = CL + Long-term debt =
Debt Ratio =
b.
Is the firm profitable? Does the balance sheet balance? Explain.
c.
If the firm paid $5,000 in dividends in 2008, what was its retained earnings balance at the end of 2007?
RE08 = RE07 + NI08 – D08 Þ RE07 = RE08 – NI08 + D08 =
Income Statement
Balance Sheet
Sales
$102,500
Cash
$40,000
Cost of Goods
$50,000
Fixed Assets
$55,000
SG&E Expenses
$35,000
Total Assets
$95,000
EBIT
$17,500
Accounts Payable
$12,000
Interest Expense
$2,500
Long-term Debt
$25,000
Taxes
$6,000
Retained Earnings
$28,000
Net Income
$9,000
Paid-in Common Equity
$30,000
Explanation / Answer
Answer to Part a:
Current Ratio = Current Assets / Current Liabilities
Current Assets = Cash = $40,000
Current Liabilities = Accounts Payable = $12,000
Current Ratio = 40,000 / 12,000
Current Ratio = 3.33: 1
Debt ratio = Debt / Total Assets
Debt = Current Liabilities + Long Term Debt
Debt = $12,000 + $25,000 = $37,000
Debt ratio = 37,000 / 95,000
Debt ratio = 0.39 times
Answer to Part b:
Yes, the firm is profitable as it is earning a Net Income of $9,000. But the Balance sheet doesn’t explain regarding profitable, as details about previous year is not given for comparison.
Answer to Part c:
RE 08 = RE07 + NI08 – D08
or RE07 = RE08 – NI08+ D08
RE07 = $28,000 - $9,000 + $5,000
RE07 = $24,000
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