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    PROBLEM 15-19 Incomplete Statements; Analysis of Ratios

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    Incomplete financial statements for Tanner Company are given below:

    Tanner Company
    Income Statement
    For the Year Ended December 31

    Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,700,000
    Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . ?
    Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . ?
    Selling and administrative expenses . . . . . . . . ?
    Net operating income . . . . . . . . . . . . . . . . . . . . ?
    Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 45,000
    Net income before taxes . . . . . . . . . . . . . . . . . . ?
    Income taxes (40%) . . . . . . . . . . . . . . . . . . . . . . ?
    Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

    Tanner Company
    Balance Sheet
    December 31

    Current assets:
    Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ?
    Accounts receivable, net . . . . . . . . . . . . . . . . ?
    Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?
    Total current assets . . . . . . . . . . . . . . . . . . . . . ?
    Plant and equipment, net . . . . . . . . . . . . . . . . . ?
    Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ?
    Current liabilities . . . . . . . . . . . . . . . . . . . . . . . $250,000
    Bonds payable, 10% . . . . . . . . . . . . . . . . . . . . . ?
    Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . ?
    Stockholders' equity:
    Common stock, $2.50 par value . . . . . . . . . ?
    Retained earnings . . . . . . . . . . . . . . . . . . . ?
    Total stockholders' equity . . . . . . . . . . . . . . . . . ?
    Total liabilities and stockholders' equity . . . . . . $ ?

    The following additional information is available about the company:
    a. Selected financial ratios computed from the statements above are given below:
    Current ratio . . . . . . . . . . . . . . . . . . . 2.40
    Acid-test ratio . . . . . . . . . . . . . . . . . . 1.12
    Accounts receivable turnover . . . . . . 15.0
    Inventory turnover . . . . . . . . . . . . . . . 6.0
    Debt-to-equity ratio . . . . . . . . . . . . . . 0.875
    Times interest earned . . . . . . . . . . . . 7.0
    Earnings per share . . . . . . . . . . . . . . $4.05
    Return on total assets . . . . . . . . . . . . 14%

    b. All sales during the year were on account.

    c. The interest expense on the income statement relates to the bonds payable; the amount of
    bonds outstanding did not change throughout the year.

    d. There were no changes in the number of shares of common stock outstanding during the year.

    e. Selected balances at the beginning of the current year (January 1) were as follows:
    Accounts receivable . . . . $160,000
    Inventory . . . . . . . . . . . . . $280,000
    Total assets . . . . . . . . . . . $1,200,000

    Required:
    Compute the missing amounts on the company's financial statements. (Hint: You may find it help-
    ful to think about the difference between the current ratio and the acid-test ratio.)

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    Solution Summary

    The attached file contains detailed illustrations and instructions for the creation of highly important financial statements and relevant financial ratios from incomplete financial information.

    $2.19

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