Required: Compute the missing amounts on the company\'s financial statements. (
ID: 2720977 • Letter: R
Question
Required:
Compute the missing amounts on the company's financial statements. (Hint: What’s the difference between the acid-test ratio and the current ratio?) (Do not round intermediate calculations.)
Pepper Industries
Income Statement
For The Year Ended March 31
Sales
$4,200,000
Cost of Goods Sold
Gross Margin
Selling and Administration Expenses
Net Operating Income
Interest Expense
80,000
Net Income before taxes
Income Taxes (30%)
Net Income
Pepper Industries
Balance Sheet
March 31
Current Assets:
Cash
Accounts Receivables, net
Inventory
Total current Assets
Plant and equipment, net
Total assets
Liabilities:
Current Liabilities
$320,000
Bonds payable, 10%
Total Liabilities
Stockholders’ equity:
Common stock, $5 par value
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders equity
The following information is available about the company:Explanation / Answer
Pepper Industries
Income Statement
For The Year Ended March 31
Sales
$4,200,000
Cost of Goods Sold
27,30,000
Gross Margin
14,70,000
Selling and Administration Expenses
9,30,000
Net Operating Income
5,40,000
Interest Expense
80,000
Net Income before taxes
4,60,000
Income Taxes (30%)
1,38,000
Net Income
3,22,000
Pepper Industries
Balance Sheet
March 31
Current Assets:
Cash
70,000
Accounts Receivables, net
3,30,000
Inventory
4,80,000
Total current Assets
8,80,000
Plant and equipment, net
9,20,000
Total assets
1,800,000
Liabilities:
Current Liabilities
$320,000
Bonds payable, 10%
2,92,500
Total Liabilities
6,12,500
Stockholders’ equity:
Common stock, $5 par value
7,00,000
Retained earnings
4,87,500
Total stockholders’ equity
Total liabilities and stockholders equity
1,800,000
Current ratio = Current Assets / Cuurent Liabilities
2.75 * $320,000 = 8,80,000 = Current Assets
Acid-test ratio = Current Assets - Inventory - Prepaid Expenses/ Current Liabilities
1.25 * 3,20,000 = 4,00,000 = Current Assets - Inventory - Prepaid Expenses= CASH + Accounts REceivable
Times interest earned ratio = Income before Interest and Tax / Interest Expense
6.75 * 80,000 = 5,40,000= Income before Interest and Tax
Income before Tax = 5,40,000 - 80,000 = 4,60,000
Net Income = 4,60,000 - 30 % = 3,22,000
Return on total assets = Net Income / Average Total Assets
18% = 3,22,000 / Average Total Assets
Average Total Assets = 3,22,000 / 18% = 1788888.8
Total Assets = 1,800,000
Inventory turnover = Cost of goods Sold / Average Inventory
Average Inventory = 3,60,000 + 4,80,000 / 2 = 4,20,000
6.5 *4,20,000 = 27,30,000 =Cost of goods Sold
Accounts receivable turnover = Net Sales / Average Accounts Receivable
14 = $4,200,000 / Average Accounts Receivable
Average Accounts Receivable = 4,200,000/ 14 = 3,00,000
Closing Accounts Receivable = 6,00,000 - 2,70,000 = 3,30,000
Earning per share = Net Income / Weighted Average of Outstanding Common shares
2.3 = 3,22,000/ Weighted Average of Outstanding Common shares
Weighted Average of Outstanding Common shares = 3,22,000 / 2.3 = 1,40,000
Common Stock = 1,40,000 * 5 = 7,00,000
Debt-to-equity ratio = Total Liabilities / Total Equity
0.875 = Total Liabilities / 7,00,000
Total Liabilities = 7,00,000 * 0.875 = 6,12,500
Pepper Industries
Income Statement
For The Year Ended March 31
Sales
$4,200,000
Cost of Goods Sold
27,30,000
Gross Margin
14,70,000
Selling and Administration Expenses
9,30,000
Net Operating Income
5,40,000
Interest Expense
80,000
Net Income before taxes
4,60,000
Income Taxes (30%)
1,38,000
Net Income
3,22,000
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