Prepare an income statement, statement of retained earnings, and a balance sheet
ID: 2551612 • Letter: P
Question
Prepare an income statement, statement of retained earnings, and a balance sheet.
You have been hired by ABC Co. to assess their current financial situation and offer suggestions for potential expansion. ABC has been in business for 6 years and has grown from a sole proprietor to its current status. The business is in a growing industry and sells accessories for technology items. Sales have been steadily growing and this is something that Jane, the owner, is very happy about.
Jane’s area of expertise is marketing and operations and she hired you to get an outsiders perspective on the current position of her business and to see if her young employees have been keeping the books accurately, as well as guiding her appropriately from a financial perspective. She does have long range plans for the business and part of her plan requires external financing. As part of her plan, she is thinking about expansion.
In your meeting with her, she starts throwing out names and numbers of accounts and hands you several documents. You collect the notes and jot down all the information she is verbally telling you, so as not to miss any important facts. You know the first step you will take is to prepare financial statements in order to establish her current situation. But to give her future oriented advice, you know an analysis of the statements will also be required.
Janes emphasizes that all the information you are about to receive is for the most recent fiscal year which ended on December 31st. She tells you taxes were 27% of pre-tax profit of which $9,000 is still owed. She explains there is $142,000 of common stock and she recently paid a dividend of $8,350. She tells you she has a mortgage loan with the long term portion outstanding of $142,800. The current portion for this period was $14,600.
She provides you with a document that lists beginning of the year inventory at $99,780. The document also details several expenses that were incurred throughout the year including utilities at $5,440, depreciation on building and equipment of $18,600, advertising of $14,200, and interest expense of $3,100. The business currently holds $49,000 in other investments that may be sold or turned into depreciable assets in the future.
Jane has a smile when she informs you that sales have grown over 12% from the previous year and she expects similar growth for the following year. Her current year sales are $958,337. Of course her purchases are a major expense for her business and she spent $833,900 to support her encouraging sales figures. $136,300 is still owed to her suppliers. The owner lets you know that she also has a notes payable of $48,000.
Jane provides you will copies of documents showing that she paid $369,400 for her property which you see that the land was listed at $109,300, the building and equipment was listed at $232,600 on the document.
The owner states that she does allow some of her business customers to get items on credit, causing current, end of year accounts receivables of $54,200.
She lets you know during the course of your meeting that her business had a gross profit of $286,660, salary expense of $125,970 and other operating expenses of $5,550. At the beginning of the current year, accumulated depreciation on the building and equipment was $104,100.
Lastly, she shows you the previous retained earnings statement and you see her business has previously retained $61,000 of past earnings to help fund the business.
With all the information presented, she requests you create independent financial statements so she can compare them to the information her current employees have provided. Complete the analysis instructions in the assignment.
Explanation / Answer
Items of income statement Items of balance sheet Tax Liabilities $9,000.00 utilities $5,440 common stock $142,000 Depreciation $18,600 Dividend payment $8,350 Advertisement $14,200 Mortgage loan-long term $142,800 Interest $3,100 Mortgage loan-current portion $14,600 Sales $958,337 Beginning inventory $99,780 Purchase $833,900 Short term investment $49,000 Gross profit $286,660 Accounts payable $136,300 Salaries $125,970 Notes payable $48,000 Other operating expenses $5,550 Land $109,300 Cost of goods sold $671,677 (958337-286660) Building and equipment $232,600 Beginning Inventory $99,780 Accounts receivable $54,200 Add:Purchase $833,900 Beginning of year accu. Depreciation $104,100 Total $933,680 Beginning of year Retained earnings $61,000 Less: Ending Inventory $262,003 (933680-671677) Ending Inventory $262,003 Cost of goods sold $671,677 Income Statement t For the year ending December 31 Sales Revenue $958,337 Beginning Inventory $99,780 Add:Purchase $833,900 Total $933,680 Less: Ending Inventory $262,003 Cost of goods sold $671,677 (958337-286660) Gross Profit $286,660 Operating expenses: Salaries $125,970 utilities $5,440 Depreciation $18,600 Advertisement $14,200 Other operating expenses $5,550 Interest $3,100 Total operating expenses $172,860 Profit before taxes $113,800 Taxes (27% of 113800) $30,726 Net Income $83,074 Balance Sheet As on December 31 ASSETS: Cash $44,021 (628424-584403) Accounts receivable $54,200 Inventory $262,003 Short term investment $49,000 Total current assets $409,224 Land at cost $109,300 Building and equipment at cost $232,600 Accumulated depriciation ($122,700) (104100+18600) Total Assets $628,424 LIABILITIES Tax Liabilities $9,000.00 Mortgage loan-current portion $14,600 Accounts payable $136,300 Notes payable $48,000 Total current liabilities $207,900 Mortgage loan-long term $142,800 Total Liabilities $350,700 Shareholders Equity: common stock $142,000 Retained earnings $135,724 (61000+83074-8450) Total Shareholders equity $277,724 Total Liabilities and shareholders equity $628,424 STATEMENT OF RETAINED EARNING Retained earning at the egining of the year $61,000 Add:Net income for the year $83,074 Less: Dividend paid ($8,350) Retained earning at the end of the year $135,724