Consider the following income statement for the Heir Jordan Corporation: HEIR JO

Question

Consider the following income statement for the Heir Jordan Corporation: HEIR JORDAN CORPORATION Income Statement $47,900 33,900 Sales Costs Taxable income Taxes (2296) Net income $14,000 3,080 10,920 Dividends Addition to retained $3,300 7620 earnings The balance sheet for the Heir Jordan Corporation follows. Based on this information and the income statement, supply the missing information using the percentage of sales approach. Assume that accounts payable vary with sales, whereas notes payable do not. (Leave no cells blank - be certain to enter "O" whenever the item is not a constant percentage of sales. Enter each answer as a percent rounded 2 decimal places, e.g., 32.16.)

Explanation / Answer

In percentage of sales approach, balance sheet and income statement accounts which vary director ly wiwisalea are expressed as per ebtafe of sales.

The accounts which generally carry closely with sales are cash, accounts receivable, inventory and accounts payable. Fixed assets are also toed to sales, unless there is excess capacity.

Retained earnings represent cumulative total of firms earnings which is reinvested in the firm. The change in this account is linked to sales.

The notes payable, long term debt and common stick accounts do not carry automatically with sales. The change in these accounts depend upon how the firm chooses to raise the funds needed yo support to forecast growth sales.

Assets Amount % of sales liabilities and owners equity amount % of sales Current assets Current liabilities Cash 2200 4.59 accounts payable 4000 8.35 Accounts receivable 5000 10.44 notes payable 5100 0 Inventory 8000 16.70 total 9100 Total 15200 Long term debt 22000 0 Fixed assets Owners equity Net plant and equipment 36600 76.40 Common stock and paid in surplus 18000 0 Retained earnings 2700 0 Total 51800 Total 51800

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