The Scope and Environment of Financial Management 3-5. (Working with an income s
ID: 2807484 • Letter: T
Question
The Scope and Environment of Financial Management 3-5. (Working with an income statement and balance sheet) Prepare a balance sheet and income statement for Belmond, Inc. from the following information. Inventory 6,500 45,000 16,550 1,350 600 900 500 12,800 9,600 4,800 55,000 5,750 122,000 34,000 1,440 850 Common stock / Cash Operating expenses Short-term notes payable Interest expense Depreciation expense / Sales Accounts receivable Accounts payable Long-term debt Cost of goods sold Buildings and equipment Accumulated depreciation Taxes General and administrative expenses Retained earningsExplanation / Answer
Belmon Inc:
Balance Sheet
The balance sheet of any firm,going business undertaking or even federal institutions posses two sides divided into three distinct parts namely Assets (on the left side) and Shareholder's Equity + Liabilities (on the right side). All entries which essentially are increase or decrease in amount of the three parts mentioned above should should balance each other out such that the following equation holds:
Assets = Shareholder's Equity + Liability
The asset part in turn is divided into two sections: Current and Non Current Assets. Similarly, the Liability part is also composed of two sections: Current Liabilities and Non Current (or Long Term Liabilities). Current Assets/ Liabilities are short term endowments or obligations respectively. Non Current Assets/Liabilities are longer term in nature (usually greater than a year in duration).
Shareholder's Equity consists of items such as Retained Earnings, Paid In Capital, Common Stock, Preferred Stock, Treasury Stock, Reserves and more.
Using the information given above, the balance sheet of Belmond Inc would be like given below:
Current Assets Non Current/ Fixed Assets
Inventory = $ 6500 Building and Equipment = $122000 (Gross Value)
Cash = $ 16550 Accumulated Depreciation = ($34000)
Accounts Receivable = $ 9600 Net Value of Building and Equipment =122000 - 34000 = $ 88000
Total Current Assets = $ 32650 Total Non Current/Fixed Assets = $ 88000
Total Assets = Total Current Assets + Total Non Current/Fixed Assets = $120650
Current Liabilities: Non Current Liabilities
Short Term Notes Payable = $600 Long Term Debt = $55000
Accounts Payable = $4800 Total Non Current Liabilities = $55000
Total Current Liabilities = 4800 + 600 = $5400
Total Liabilities = Total Current Liabilities + Total Non Current Liabilities = 5400 + 55000 = $ 60400
Shareholder's / Owner's Equity:
Common Stock = $ 45000
Retained Earnings = $ K (assumed a variable)
Total Shareholder's /Owner's Equity = 45000 + K
Therefore, Total Assets = Total Shareholder's / Owner's Equity + Total Liabilities
120650 = 45000 + K + 60400
K = 120650 - 45000 - 60400
K = $ 15250
Income Statement for Belmond Inc.
Sales = $ 12800
LESS: Cost of Goods Sold = $ 5750
Gross Profit = $ 7050
LESS: General and Administrative Expenses = $ 850
LESS: Operating Expenses = $ 1350
EBITDA = $ 4850
LESS: Depreciation Expense = $ 500
EBIT = $ 4350
LESS: Interest Expense = $ 900
Profit Before Tax (PBT) = $ 3450
LESS: Taxes = $ 1440
Profit After Tax (PAT) OR Net Income = $ 2010
NOTE: The order of General & Administrative Expenses and Operating Expenses can be interchanged.
EBITDA stands for Earnings before interest, taxes, depreciation and amortization. Also known as the cash operating profit. Depreciation Expense will feature in the income statement as it is a periodic value of the fixed asset's depreciation and represented as an expense to ensure tax savings.
Accumulated Depreciation is a balance sheet item as it is the total value of the firm's fixed asset depreciation sinc purchase.
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