Question

Pope's Garage had the following accounts and amounts in its financial statements on December 31, 2016. Assume that all balance sheet items reflect account balances at December 31, 2016, and that all income statement items reflect activities that occurred during the year then ended. Accounts receivable Depreciation expense Land Cost of goods sold Retained earnings Cash Equipment Supplies Accounts payable Service revenue Interest expense Common stock Income expense Accumulated depreciation Long-term debt Supplies expense Merchandise inventory Sales revenue $ 30,100 11,800 26,200 ,000 60,500 11,100 70,000 5,600 21,000 29,100 2.900 9,000 22,680 44,000 38,000 13,400 29,500 168,000 Required: a. Calculate the total current assets at December 31, 2016. Total current assets b. Calculate the total liabilities and stockholders' equity at December 31, 2016. Total liabilities and stockholders' equity c. Calculate the earnings from operations (operating income) for the year ended December 31, 2016. Operating income

Answer 1

Hi,

Pls see below:

a) Total current assets:

Accounts receivable+ Cash + Inventory = 30,100+11,100+29,500 = 70,700

b) Total liabilities and stock holders equity :

Liabilities = Accounts payable + Debt = 21,000 +38,000 = 59,000

Stock holders equity = Retained earnings + Common stock = 60,500+ 9,000 = 69,500

Total = 59000+69500 = 1,28,500

c) Operating income

Sale revenue	168,000
Service revenue	29,100
Total Sales	197,100
Cost of Goods sold	88,000
Gross revenue	109,100
Expenses:
Supplies expense	13,400
Depreciation	11,800
Total expense	25,200
Operating income	83,900

Note : Operating income excludes taxes and interest expense.

d) Net income = Operating income- Interest expense -Tax expense = 83,900-2900-22680= 58,320

e) Average tax rate = Income tax / (Operating income - Interest expense)

i.e 22,680/(83900-22680) = 37 % approx

f) Reatined earnings balance as on 1st Jan = 60,500+ 18,500 = 79,000