Question

1. Create a new income statement and balance sheet that are linked to EACH OTHER. Please account for the following (please note that this is a general exercise and that there are some specific accounting nuances that may be difficult to resolve given this limited amount of data…please see the instructor if you are having difficulty):

Revenue                                                               $100,000 (this should be an input field)

COGS                                                                     50% of revenue

Taxes                                                                    35% rate

Dividends                                                           50% of Net Income

Interest Expense                                              12% of Long-Term Debt (Balance Sheet)

Depreciation                                                      20% of Net Fixed Assets (Balance Sheet)

Number of shares                                             100,000 (input field)

EPS (calculate)

Current Assets

                Cash                                                      $20,000 (input field)

                A/R                                                        20% of Sales (Income statement)

                Inventory                                            $20,000 (input field)

Total Current Assets                                        (calculation)

Fixed Assets

                Net Fixed Assets                               $75,000 (input field)

Total Assets (Calculation)

Liabilities and Owners Equity

Current Liabilities

                Accounts Payable                             40% of COGS (Income statement)

                Notes Payable                                    $10,000 (input field)

Total Current Liabilities                                (calculation)

Long Term Debt                                               $20,000 (input field)

Owners Equity

                Common Stock and Paid-In Surplus                        $50,000 (input field)

Retained Earnings                                                           (calculate)

Total Owners Equity                                                                       (calculate)

Total Liabilities and Owners Equity                                          (calculate)

Answer 1

Income statement

Revenue	100,000
Cost of goods sold	- 50,000
Gross profit	50,000
Operating expenses:
Depreciation	- 15,000
Operating profit	35,000
Interest expense	- 2,400
Profit before tax	32,600
Income tax	- 11,410
Net income	21,190

Retained earnings = Net income - Dividends

= 21,190 - 10,595

= $10,595

EPS = Net income/Number of common shares

= 21,190/100,000

= $0.21

Balance sheet

Assets
Current assets
Cash	20,000
A/R	20,000
Inventory	20,000
Total current assets	60,000
Fixed assets
Net fixed assets (75,000 - 15,000)	60,000
Total assets	120,000
Liabilities and Owners Equity
Current Liabilities
Accounts Payable	20,000
Notes Payable	10,000
Income tax payable	9,405
Total Current Liabilities	39,405
Long Term Debt	20,000
Owners Equity
Common Stock and Paid-In Surplus	50,000
Retained Earnings	10,595
Total Owners Equity	60,595
Total Liabilities and Owners Equity	120,000

Income tax payable is not given in the question. It has been calculated as a balancing figure.