Question

The following information was obtained from the records of Shae Inc.: Merchandise inventory Notes payable (long-term) Net sales Buildings and equipment Selling, general, and administrative expenses Accounts receivable Common stock (14,000 shares) Income tax expense $ 88,000 100.000 300.000 168,000 20.000 40.000 70,000 28.000 64.000 43.000 6.000 180,000 72.000 16,000 30.000 13,000 Retained earnings, 1/1/19 Nccrued liabilities Cost of goods sold Accumulated depreciation Interest expense Accounts payable Dividends declared and paid during 2019 Except as otherwise indicated, assume that all balance sheet items reflect account balances at December 31, 2019, and that all income statement items reflect activities that occurred during the year ended December 31, 2019. There were no changes in paid in capital during the year. Regulred a. Prepare an income statement and statement of changes in stockholders' equity for the year ended December 31, 2019, and a balance sheet at December 31, 2019, for Shae Inc. Based on the financial statements that you have prepared for part a, answer the questions in parts be. b. What is the company's average income tax rate? c. What interest rate is charged on long-term debt? Assume that the year-end balance of long-term debt is representative of the average long-term debt account balance throughout the year d. What is the par value per share of common stock? e. What is the company's dividend policy file, what proportion of the company's earnings is used for dividends)?

Answer 1

Answer with working notes is given below

Shae Inc. Income Statement for the year ended December 31st, 2019 Net Sales $300,000 Less: Cost of Goods sold $180,000 Gross profit $120,000 Less: Operating expense Selling, general and administrative expenses $24,000 Profit before Interest and tax $96,000 Less: Interest $16,000 Profit before tax $80,000 Less: Income tax expense $28,000 Net Income $52,000 Shae Inc. Statement of Changes in Stockholders' Equity For the year ended December 31st, 2019 Opening balance of Retained earnings Add: Net Income during the year Less: Dividend paid Closing balance of Retained earnings $43,000 $52,000 -$13,000 $82,000 Shae Inc. Balance Sheet as on December 31st 2019 Assets Current Assets Cash $64,000 Accounts Receivable $40,000 Merchandise Inventory $88,000 $192,000 $168,000 -$72,000 Fixed Assets Buildings and equipment Less: Accumulated Depreciation Net Buildings and equipment Total Assets Liabilities and Stockholders' equity Current Liabilities: Accounts payable Accrued liabilities $96,000 $288,000 $30,000 $6,000 $36,000 Long-term Liabilities: Notes Payable $100,000 Stockholders Equity: Common Stock Retained Earnings Total Liabilities and Stockholders equity $70,000 $82,000 $152,000 $288,000 b Average Income tax rate Income tax Income before tax $28,000 A $80,000 B Average Income tax rate 35.00% A/B Interest expense Notes payable balance $16,000A $100,000 B Interest Rate on long-term debt 16.00% A/B Common stock Number of shares $70,000 A 14,000 B Par value of Common stock $5.00 A/B Dividend declared and paid Net Income $13,000 $52,000 B Dividend payout ratio 25.00% A/B The company has a dividend payout policy of 25% from Net income during the year