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 Cash Retained earnings, 1/1/19 Nccrued liabilities Cost of goods sold Accumulated depreciation Interest expense Accounts payable Dividends declared and paid during 2019 $ 88,000 100,000 300,000 168.000 24,000 40,000 70.000 28.000 64,000 43,000 6.000 180,000 72,000 16,000 30,000 13,000 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 Required: 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 parta, answer the questions in parts b-e. 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 (ie, what proportion of the company's earnings is used for dividends)?

Answer 1

Income statement
For the period ended Dec 31, 2019	amount ($)
net sales	300000
cost of sales	-180000
gross profit	120000
operating expenses
selling expenses	-24000
earnings before interest and tax	96000
interest expense	-16000
earnings before tax	80000
income tax	-28000
net income	52000

Statement of changes in stockholders equity
For the year ended Dec 31, 2019	amount ($)
Beginning common stock	70000
Total common stock		70000
Beginning retained earning	43000
Net income	52000
Less:dividends	-13000
Ending retained earnings		82000
Total stockholders equity		152000

Balance Sheet
As of Dec 31, 2019
liabilities	amount ($)	assets	amount ($)
accounts payable	30000		cash	64000
accrued liabilities	6000		accounts receivable	40000
total current liabilities		36000	merchandise inventory	88000
notes payable		100000	total current assets		192000
total liabilities		136000	building and equipment	168000
stockholders equity			less:accumulated depreciation	-72000	96000
common stock	70000
retained earnings	43000
net income	52000
less:dividends	-13000	152000
total liabilities and stockholders equity		288000	total assets		288000

average income tax rate	(income tax expenses / earnings before tax)*100
	amount ($)
income tax expense	28000
earnings before tax	80000
tax rate	35.00%
interest rate	interest expense / principle balance)*100
	amount ($)
interest expense	16000
notes payable	100000
interest rate	16.00%
par value per share common stock	total value of common stock / no.of shares outstanding
	amount ($)
capital stock	70000
no.of shares outstanding	14000
par value per share	5