Question

The following information was obtained from the records of Shae Inc.:

Merchandise inventory	$	88,000
Notes payable (long-term)		100,000
Net sales		300,000
Buildings and equipment		168,000
Selling, general, and administrative expenses		24,000
Accounts receivable		40,000
Common stock (14,000 shares)		70,000
Income tax expense		28,000
Cash		64,000
Retained earnings, 1/1/19		43,000
Accrued liabilities		6,000
Cost of goods sold		180,000
Accumulated depreciation		72,000
Interest expense		16,000
Accounts payable		30,000
Dividends declared and paid during 2019		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:

1. 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 part a, answer the questions in parts b–e.
2. What is the company's average income tax rate?
3. 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.
4. What is the par value per share of common stock?
5. What is the company's dividend policy (i.e., what proportion of the company's earnings is used for dividends)?

Answer 1

Anwen Tg, Aeparation_of Income statement statement of changes to Stowholder's Equity 491 Balance sheet 05 of_Dec 31, 2013 1. Income Stylement of Shege Inc Net sales --) cost of Goods Sold Grass Profit -: selling, General de Almigistatne Expenses Earnings befove Interest Tax ; Iatevest Expenne Eqmning before Tax : Income Tax Net Income 300000 (189000) 120000 (24000) 96000 (16000) 80000 (18000) 52000 70000 2. Sty bergent of changes 19 Equity - paid in Gpital - Common SBock Retyined Emnings . Opening Bolagse t: Net Income -: Divideoks paid To tą] Stock holders Equity 43000 52000 (13000) ܘ ܘ ܤܐ? 152000

2. balance sheet of Shage IJC. . کروایا f۹۶ Am- Assets wygenb Assets Gish Accounts Receivable Merchantwe Inventory 64000 40000 88000 192800 Doporby , llant and Equipment - Buildiet p! urinent .-; Accumulated Depreciation 168000 1 (F2000 Total Assets 228000 Liabilities. | current Liabilities Accounts Payable Accuyed Liabilities 30000 Cooo 360 do Long - bem Libilities Notes lqgable 100000 Stockholten'Equicy - ოოცი ( 70000 retyined fpoigo 82000 1S2000 288000 Total lophilities and stockholleus Equity

Ho company's Average_Iqwme_Tax Rabe Average Income = _Income Tax Expense Tax Rate Earnings before Taxes 28000 89000 Average Income Tox Rate : 35%! [. Intevest. Rate on long term_Debt. Inteupit Rate of - Long term Debt Interest Expense Notes Payable (long term - 16000 100000 Interest Rate on Long Lam Debt 16%

of Common 1 d. la. Value on share - Par Value per Share Stock Total common stock cin $) - No. of shares $ 70000 14000 shares Pqr Value per Share : $ 5 per share le Dingend Policy_of_company Dividend Policy Dividend Pald Net Income 13000 52000 25% 25 علاه كومه لازم Company has dividend payout policy of 25% of Net Income The 4 52000 152000 - answers are : 1. Net Income . Statement of changes in Equity Average Role of Socome_TAX_ of Income Tax 35% 6. 16% c Interest Rate on long term Debt $5 per share J. Par Value per Shave e Divisent payout policy 25% of Net Income