Question

The information on the following page was obtained from the records of Breanna Inc.: Accounts receivable Accumulated depreciation Cost of goods sold Income tax expense Cash Net sales Equipment Selling, general, and administrative expenses Common stock (8,700 shares) Accounts payable Retained earnings, 1/1/19 Interest expense Merchandise inventory Long-term debt Dividends declared and paid during 2019 $ 10,000 50.900 126,000 9.500 61,500 192,000 123,000 38,000 91,000 12,800 32,650 5,600 37,300 38,000 6,450 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 Breanna Inc. Based on the financial statements that you have prepared for part a, 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 (i.e., what proportion of the company's earnings is used for dividends)?

Answer 1

INCOME STATEMENT

PARTICULAR	DETAILS	$
REVENUE
Net sales	1,92,000
Total Revenue		1,92,000
COST OF GOODS SOLD		1,26,000
EXPENSES
Interest expense	5,600
S, G & A expenses	38,000
Total expenses		1,69,600
NET INCOME BEFORE TAX		22,400
Income tax expense		-9,500
NET INCOME		12,900

STATEMENT OF OWNER'S EQUITY

PARTICULAR	DETAILS	$
PAID-IN CAPITAL		91,000
RETAINED EARNINGS
Beginning Balance	32,650
Dividend declared & paid	-6,450
Ending Balance	26,200
TOTAL SHAREHOLDERS' EQUITY		1,17,200

BALANCE SHEET

PARTICULARS	$
ASSETS
Non-current Assets
Equipment (net of accumulated dep.)	72,100
Current Assets
Merchandise Inventory	37,300
Accounts Receivables	10,000
Cash & cash equivalents	61,500
TOTAL ASSETS	1,80,900
EQUITY & LIABILITIES
EQUITY
Common Stock	91,000
Retained Earnings	26,200
Net profit for the period	12,900
TOTAL EQUITY	1,30,100
LIABILITIES
Current Liabilities
Accounts Payable	12,800
Non-current Liabilities
Long-term debt	38,000
TOTAL EQUITY & LIABILITIES	1,80,900

PART (D)

Avg, income tax rate	42.40%
Interest rate	14.74%
Par value of share	10.46
Dividend	50% of net income