Question

a. Calculate the total current assets at December 31, 2016.

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 tax expense Accumulated depreciation Long-term debt Supplies expense Merchandise inventory Sales revenue $ 30,600 10,500 25,000 86,500 60,600 9,900 68,500 5,200 21,900 21,600 1,500 5,000 18,768 42,000 35,000 13,900 25,300 169,000

b. Calculate the total liabilities and stockholders’ equity at December 31, 2016.

c. Calculate the earnings from operations (operating income) for the year ended December 31, 2016.

d. Calculate the net income (or loss) for the year ended December 31, 2016.

e. What was the average income tax rate for Pope’s Garage for 2016?

f. If $16,500 of dividends had been declared and paid during the year, what was the January 1, 2016, balance of retained earnings?

Answer 1

a. Total Current Assets = $71,000;

b. Total Liabilities and Stockholders Equity = $122,500;

c. Operating Income = $79,700;

d. Net Income = $59,432;

e. Average Income Tax rate = 24%;

f. Revised Retained Earnings = $17,668.

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Pope's Garage Retained Earnings Statement for year ended December 31,2016 Beginning Retained Earnings, $ 1,168 Add: Net Income $ 59,432 Ending Retained Earnings, $60,600 Pope's Garage Balance sheet December 31,2016 Assets: Cash Accounts Receivable Merchandise Inventory Pope's Garage Income Statement for year ended December 31,2016 Revenues: Service Revenue $ 21,600 Net Sales $ 169,000 Total Revenues $190,600 Expenses: Cost of goods sold $ 86,500 Depreciation expense $ 10,500 Supplies expense $ 13,900 $ 110,900 Income From Operation $ 79,700 Interest expense $ 1,500 Income before Taxes $ 78,200 Income tax expense $ 18,768 Net Income $ 59,432 Supplies $ 9,900 $ 30,600 $ 25,300 $ 5,200 $ 71,000 $ 25,000 $ 68,500 $ 42,000 $ 26,500 $122,500 Total Current Asset Land Equipment Less: Accumulated depreciation Total Assets Liabilities: Liabilities: Accounts Payable Long-term debt Total Liabilities Stockholders' Equity: Common Stock Retained Earnings Total Stockholders' equity Total Liabilities and Stockholders' Equity $ 21,900 $ 35,000 $ 56,900 Average Income Tax Rate = Income Tax Expense / Income before taxes $18,768 / $78,200 24.00% $ 5,000 $ 60,600 $ 65,600 $122,500 $ Ending Retained Earnings Beginning RE Beginning RE Beginning REN Beginning Retained Earnings + Net Income - Dividends Ending RE+ Net Income - Dividends $60,600 - $59,432 + $16,500 $ 17,668

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