Question

The following information is available about the company:

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	$	220,000
Inventory	$	330,000
Total assets	$	1,415,000

e.	Selected financial ratios computed from the statements below for the current year are:

Earnings per share	$	3.06
Debt-to-equity ratio		0.880
Accounts receivable turnover		15.0
Current ratio		2.00
Return on total assets		12	%
Times interest earned ratio		6.0
Acid-test ratio		1.19
Inventory turnover		9.0

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.)

	Pepper Industries Income Statement For the Year Ended March 31 Sales $3,600,000 Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense 51,000 Net income before taxes Income taxes (40%) Net income

	Pepper Industries Balance Sheet March 31 Current assets: Cash Accounts receivable, net Inventory Total current assets Plant and equipment, net Total assets Liabilities: Current liabilities $260,000 Bonds payable, 10% Total liabilities Stockholders’ equity: Common stock, $2.50 par value Retained earnings Total stockholders’ equity Total liabilities and stockholders equity

Answer 1

Account Receivable Turnover Ratio
Net Credit Sales       =	3600000	=	15
Average Accounts Receivables	220000+Closing Account Receivable
	2
	7200000	=	15
	220000+Closing Account Receivable
	15(220000+Closing Account Receivable) = 7200000
	3300000 + 15 Closing Account Receivables = 7200000
	15 Closing Account Receivable = 3900000
	Closing Account Receivable = 260000

Current Ratio
Current Assets     =	2
Current Liabilities
Current Assets     =	2
260000
Current Assets    =	520000
Inventory turnover
Cost of Goods sold   =	9
Average Inventory
Cost of Goods sold    =	9
330000+210600
2
Cost of Goods sold    =	9
270300
Cost of Goods sold    =	2432700

Times interest earned ratio			Acid-test ratio
EBIT =	6		Current Assets- Stock   =	1.19
Interest			Current Liabilities
EBIT =	6
51000			520000- Stock    =	1.19
EBIT =	306000		260000
			520000 -stock =	309400
			Stock =	210600

Inventory turnover				Earnings per share
Cost of Goods sold   =	9			Net Income   =	3.06
Average Inventory				Number of shares
Cost of Goods sold    =	9			153000          =	3.06
330000+210600				Number of shares
2
Cost of Goods sold    =	9			3.06 * Number of shares   =	153000
270300				Number of shares   =	50000
Cost of Goods sold    =	2432700

Pepper Industries				Pepper Industries
Income Statement				Balance Sheet
For the Year Ended March 31	(in dollars)			Mar-31
Sales	3600000			Current assets:
Cost of Goods sold	-2432700			Cash	49400	(520000-260000-210600)
Gross Margin	1167300			Accounts receivable, net	260000
Selling and administrative expenses	861300	(1167300-306000)		Inventory	210600
Net operating income	306000			Total current assets	520000
Interest expense	51000			Plant and equipment, net	895000	(1415000-520000)
Net income before taxes	255000			Total assets	1415000
Income taxes (40%)	102000
Net income	153000			Liabilities:
				Current Liabilities	260000
				Bonds Payable, 10%	510000	(51000/0.10)
				Total Liabilities	770000
				Stockholders’ equity:
				Common stock, $2.50 par value	125000
				Retained earnings	520000	(645000-125000)
				Total stockholders’ equity	645000	(1415000-770000)
				Total liabilities and stockholders equity	1415000