Question

Problem 2-1: Preparing Financial Statements

Information below is for Buraydah Manufacturing, Inc. for the year ended December 31, 20x1 except where beginning of year numbers indicated. All amounts in SAR unless otherwise stated.
Accumulated depreciation	2,817,000
Sales	5,826,000
Accounts receivable	233,000
Interest expense	237,000
Cost of goods sold	2,672,000
Short term notes payable	195,000
Income taxes	366,600
Inventories	967,000
Common stock	428,000
Dividends paid	120,000
Cash	986,500
Marketing, general and administrative expenses	1,678,500
Long term debt	5,844,000
Fixed assets (property & equipment)	7,218,000
Accounts payable	395,000
Other assets	862,000
Depreciation expense	422,000
Retained earnings at beginning of year	419,600
Number of shares of common stock	1,000
Using the information above:
1. Prepare an income statement in good form
2. Prepare end of year balance sheet in good form
3. Calculate net working capital
4. Calculate the debt ratio
Using an additional column for each financial statement:
5. Prepare a common sized income statement
6. Prepare a common sized balance sheet

Answer 1

Buraydah Manufacturing, Inc.
Income Statement
For Dec 31, 20x1	Amount (SAR)
sales	5826000
less:cost of goods sold	-2672000
gross profit	3154000
less:marketing expenses	-1678500
operating income	1475500
less:depreciation expense	-422000
EBIT	1053500
less:interest expense	-237000
EBT	816500
less:tax	-366600
net profit	449900

	Buraydah Manufacturing, Inc.
	Balance sheet
		As of Dec 31, 20x1
Liabilities		Amount (SAR)	Assets		Amount (SAR)
accounts payable		395000	cash		986500
short term notes payable		195000	accounts receivable		233000
long term debt		5844000	inventories		967000
common stock		428000	fixed assets	7218000
retained earnings start	419600		less:depreciation	-2817000	4401000
net profit for the year	449900		other assets		1024000
less:dividend	-120000	749500
total		7611500	total		7611500

working capital	total current assets - total current liabilities
	Amount (SAR)
current assets:
cash	986500
accounts receivable	233000
inventories	967000
total current assets	2186500
current liabilities:
accounts payable	395000
short term notes payable	195000
total current liabilities	590000
working capital	1596500
debt ratio	total liabilities / total assets
	Amount (SAR)
total liabilities
accounts payable	395000
short term notes payable	195000
long term debt	5844000
total liabilities	6434000
total assets	761150
debt ratio	8.45

common size

Buraydah Manufacturing, Inc.
Income Statement
For Dec 31, 20x1	Amount (SAR)	common size
sales	5826000	100.00%
less:cost of goods sold	-2672000	-45.86%
gross profit	3154000	54.14%
less:marketing expenses	-1678500	-28.81%
operating income	1475500	25.33%
less:depreciation expense	-422000	-7.24%
EBIT	1053500	18.08%
less:interest expense	-237000	-4.07%
EBT	816500	14.01%
less:tax	-366600	-6.29%
net profit	449900	7.72%

	Buraydah Manufacturing, Inc.
	Balance sheet
		As of Dec 31, 20x1
Liabilities		Amount (SAR)	common size	Assets		Amount (SAR)
accounts payable		395000	5.19%	cash		986500
short term notes payable		195000	2.56%	accounts receivable		233000
long term debt		5844000	76.78%	inventories		967000
common stock		428000	5.62%	fixed assets	7218000
retained earnings start	419600			less:depreciation	-2817000	4401000
net profit for the year	449900			other assets		1024000
less:dividend	-120000	749500	9.85%
total		7611500	100.00%	total		7611500