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PROBLEM 15-19 Incomplete Statements; Analysis of Ratios

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.)

Attachments

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