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    1. 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................................................ $132,000
    Notes payable (long term)........................................... 150,000
    Sales......................................................................... 450,000
    Buildings and equipment.............................................. 252,000
    Selling, general, and adminstrative expenses.................. 36,000
    Accounts receivable...................................................... 60,000
    Common stock (21,000 shares)...................................... 105,000
    Income tax expense...................................................... 42,000
    Cash............................................................................ 96,000
    Retained earnings, 1/107............................................... 64,500
    Accured liabilities.......................................................... 9,000
    Cost of goods sold........................................................ 270,000
    Accumulated depreciation.............................................. 108,000
    Interest expense.......................................................... 24,000
    Accounts payable.......................................................... 45,000
    Dividends declared and paid during 2007........................ 19,500

    2. Understanding and analyzing financial statement relationships-sales/service organization. Pope's Garage had the following accounts and amounts in its financial statements on December 31, 2007. Assume that all balance sheet items reflect account balances at December 31, 2007, and that all income statement items reflect activities that occured during the year then ended.

    Accounts receivable............................................ $33,000
    Depreciation expense.......................................... 12,000
    Land.................................................................. 27,000
    Cost of goods sold.............................................. 90,000
    Retained earnings............................................... 59,000
    Cash.................................................................. 9,000
    Equipment.......................................................... 71,000
    Supplies............................................................. 6,000
    Accounts payable................................................ 23,000
    Service revenue.................................................. 20,000
    Interest expense................................................. 4,000
    Common Stock................................................... 10,000
    Income tax expense............................................ 12,000
    Accumulated depreciation..................................... 45,000
    Long-term debt.................................................... 40,000
    Supplies expense................................................. 14,000
    Merchandise inventory.......................................... 31,000
    Sales revenue...................................................... 140,000

    a. Calculate the total current assets at December 31, 2007.
    b. Calculate the total liabilities and owners' equity at December 31, 2007.
    c. Calculate the earnings from operations (operating income) for the year ended
    December 31, 2007.
    d. Calculate the net income (or loss) for the year ended December 31, 2007.
    e. What was the average income tax rate for Pope's Garage for 2007.
    f. If $16,000 of dividends had been declared and paid during the year, what was
    the January 1, 2007, balance of retained earnings?

    Prepare an income statement, balance sheet, and statement of changes in owner's equity; analyze results. The following information was obtained from the records of Breanna, Inc.:

    Accounts receivable............................................................ $10,000
    Accumulated deprecation..................................................... 52,000
    Cost of goods sold.............................................................. 128,000
    Income tax expense............................................................ 8,000
    Cash.................................................................................. 65.000
    Sales................................................................................. 200,000
    Equipment.......................................................................... 120,000
    Selling, general, and administrative expenses........................ 34,000
    Common stock (9,000 shares).............................................. 90,000
    Accounts payable................................................................. 15,000
    Retained earnings 1/1/07...................................................... 23,000
    Interest expense.................................................................. 6,000
    Merchandise inventory.......................................................... 37,000
    Long-term debt..................................................................... 40,000
    Dividends declared and paid during 2007................................. 12.000

    Except as otherwise indicated, assume that all balance sheet items reflect account balances at December 31, 2007, and that all income statement items reflect activities that occured during the year ended December 31, 2007. There were no changes in paid-in captial during the year.

    a. Prepare an income statement and statement of changes in owners' equity for the
    year ended December 31, 2007, and a balance sheet at December 31, 2007, for
    Breanna Inc.
    Based on the fininacial 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

    3. Complete the balance sheet. A partially completed balance sheet for Blue Co., Inc., as of January 31, 2008, follows. Where amounts are shown for various items, the amounts are correct.

    Assets Liabilities and Owners' Equity

    Cash.............................$700 Note Payable................. $______
    Accounts receivable........____ Accounts Payable........... 3,400
    Land............................. ____ Total liabilities............ $_____
    Automoble...................._____ Owners' equity
    Less: Accumulated..... _____ Common Stock............ $8,000
    Depreciation.........._____ Retained earnings........ _____
    Total assets.................$_____ Total owners' equity....... $_____
    earnings are used for dividends)? Total liabilities+ owners' equity.. $____

    Using the following data, complete the balance sheet.
    a. Blue Co.'s records show that current and former customers owe the firm a total
    of $4,000; $600 of this amount has been due for more than a year fom two
    customers who are now bankrupt.
    b. The automoble, which is still being used in the business, cost $18,000 new; a
    used car dealer's blue book shows that it is now worth $10,000. Management
    estimates that the car has been used for one-third of its total potential use.
    c. The land cost Blue Co. $11,000; it was recently assessed for real estate tax
    purposes at a value of $15,000.
    d. Blue Co.'s president isn't sure of the amount of the note payable, but he does know that he signed a note.
    e. Since the date Blue Co. was formed, net income has totaled $33,000, and dividneds to stockholders have totaled $19,500.

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    Solution Summary

    The solution has various problems requiring the preparation of income statement and balance sheet.

    $2.19

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