Prepare an income statement, balance sheet, and statement of changes in owners’ equity; analyze results The following information was obtained from the records of Shae, Inc.:
Merchandise inventory | . . . . $264,000 |
Notes payable (long-term) | . . . . 300,000 |
Sales | 900,000 |
Buildings and equipment | . . . . 504,000 |
Selling, general, and administrative expenses . . . . | . . . . 72,000 |
Accounts receivable | . . . . 120,000 |
Common stock (42,000 shares) | . . . . 210,000 |
Income tax expense | . . . . 84,000 |
Cash | 192,000 |
Retained earnings, 1/1/10 | . . . . 129,000 |
Accrued liabilities | 18,000 |
Cost of goods sold | . . . . 540,000 |
Accumulated depreciation | 216,000 |
Interest expense | 48,000 |
Accounts payable | 90,000 |
Dividends declared and paid during 2010 | 39,000 |
Except as otherwise indicated, assume that all balance sheet items reflect account balances at December 31, 2010, and that all income statement items reflect activities that occurred during the year ended December 31, 2010. There were no changes in paid-in capital during the year.
Required:
a. Prepare an income statement and statement of changes in owners’ equity for the year ended December 31, 2010, and a balance sheet at December 31, 2010, for Shae, Inc.
Based on the financial statements that you have prepared for part a, answer the questions in parts b-e. Provide brief explanations for each of your answers and state any assumptions you believe are necessary to ensure that your answers are correct.
b. What is the company’s average income tax rate?
c. What interest rate is charged on long-term debt?
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)?
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