Problem 15-21 Incomplete Statements; Ratios Analysis [LO15-2, LO15-3, L015-4, LO
ID: 2529864 • Letter: P
Question
Problem 15-21 Incomplete Statements; Ratios Analysis [LO15-2, LO15-3, L015-4, LO15-5, LO15-6 Pepper Company provided the incomplete financial statements shown below as well as the following additional information a. All sales during the year were on account. b. There was no change in the number of shares of common stock outstanding during the year. c. The interest expense on the income statement relates to the bonds payable; the amount of bonds outstanding did not change during the year. d. Selected balances at the beginning of the current year were Accounts receivable Inventory Total assets $ 300,000 $ 410,000 $ 2,870,000 e. Selected financial ratios computed from the statements below for the current year are Earnings per share Debt-to-equity ratio Accounts receivable turnover Current ratio Return on total assets Times interest earned ratio Acid-test ratio Inventory turnover $ 4.13 0.850 16.0 2.80 12% 8.0 1.15 8.0 Required Compute the missing amounts on the company's financial statements. (Hint: What's the difference between the acid-test ratio and the current ratio?) (Do not round intermediate calculations.)Explanation / Answer
Times interest eanred
EBIT/Interest
8 = EBIT/59000
EBIT = 59000*8
472000
current ratio
current assets/current liability
2.80 = current assets/260000
Current assets = 2.8*260000
728000
Acid test ratio
quick assets/current liabilities
1.15 = quick assets/260000
quick asset = 260000*1.15
299000
Inventory = current assets-quick assets
728000-299000
429000
iventory turnover ratio = cogs/average inventory
8 = cogs/419500
cogs = 419500*8
3356000
average inventory
(410000+429000)/2
419500
accounts receivable turnover ratio = sales/average accounts receivables
16 = 4400000/average accounts receivables
average accounts receivables = 4400000/16
4400000/16
275000
average accounts receivables
275000 = (300000+closing balance)/2
closing balance = 550000-300000
550000-300000
250000
return on total assets = net income/average total assets
12% = 247800/average total assets
average total assets =247000/12%
2058333
2058333
average total assets = (opening +closing)/2
2058333 = (2870000-closing)/2
closing balance =
(2058333*2)-287000
3829666
eps = net income/no of shares
4.13 = 247800/no of stock
no of stock = 247800/4.13
60000
Income statement
sales
4400000
cost of goods sold
3356000
gross margin
1044000
selling expenses
572000
net operating income
472000
interest expense
59000
net income before taxes
413000
less taxes 40%
165200
net income
247800
Balance sheet
curent assets
cash
49000
accounts receivables
250000
inventory
429000
total of current assets
728000
plant and eqquipment net
2373666
total of assets
3829666
total of liabilities and shareholders equity
current liabilities
260000
10% bonds payable
59000/10%
590000
total liabilities
850000
stockholders equity
common stock
60000*2.6
156000
retained earnings
2823666
0.285267
total stockholders equity
2979666
total of liabilities and shareholders equity
3829666
Times interest eanred
EBIT/Interest
8 = EBIT/59000
EBIT = 59000*8
472000
current ratio
current assets/current liability
2.80 = current assets/260000
Current assets = 2.8*260000
728000
Acid test ratio
quick assets/current liabilities
1.15 = quick assets/260000
quick asset = 260000*1.15
299000
Inventory = current assets-quick assets
728000-299000
429000
iventory turnover ratio = cogs/average inventory
8 = cogs/419500
cogs = 419500*8
3356000
average inventory
(410000+429000)/2
419500
accounts receivable turnover ratio = sales/average accounts receivables
16 = 4400000/average accounts receivables
average accounts receivables = 4400000/16
4400000/16
275000
average accounts receivables
275000 = (300000+closing balance)/2
closing balance = 550000-300000
550000-300000
250000
return on total assets = net income/average total assets
12% = 247800/average total assets
average total assets =247000/12%
2058333
2058333
average total assets = (opening +closing)/2
2058333 = (2870000-closing)/2
closing balance =
(2058333*2)-287000
3829666
eps = net income/no of shares
4.13 = 247800/no of stock
no of stock = 247800/4.13
60000
Income statement
sales
4400000
cost of goods sold
3356000
gross margin
1044000
selling expenses
572000
net operating income
472000
interest expense
59000
net income before taxes
413000
less taxes 40%
165200
net income
247800
Balance sheet
curent assets
cash
49000
accounts receivables
250000
inventory
429000
total of current assets
728000
plant and eqquipment net
2373666
total of assets
3829666
total of liabilities and shareholders equity
current liabilities
260000
10% bonds payable
59000/10%
590000
total liabilities
850000
stockholders equity
common stock
60000*2.6
156000
retained earnings
2823666
0.285267
total stockholders equity
2979666
total of liabilities and shareholders equity
3829666