Question

Question 1: Construction of financial statements

Your firm has lost its balance sheet as of 12/31/19 and income statement for the year ended 12/31/19. Its records are a mess, but you found the following information:

Accounting information as of 12/31/19:

Wages payable, $800

Cash, $250

Accounts receivable, net of bad debt reserve, $975

Marketable securities, $277

Long-term debt, $3,000

Other assets, $3,200

Accounts payable, $900

During 2019 your firm recognized sales of $22,000 and received $21,500 in cash payments from its customers.

During 2019, your firm’s gross profit margin was 40%, it recognized bad debt expense of $250, depreciation expense of $750, administration expense of $5,650 and R&D expense of $285.

Your firm recognized interest income of $300 and interest expense of $225. The firm’s effective tax rate was 20%.

During both 2018 and 2019, your firm declared and paid $1,200 in dividends. During 2019 your firm recognized purchases of $14,000 for inventory, paid taxes of $400 and paid suppliers $13,000.

After some research, you located the following information:

During 2019, your firm was awarded a patent based upon its research and development. The firm’s valuation consultants believe the patent is worth $1,250.

Fixed assets, cost basis, $8,000

Accumulated depreciation, 12/31/18, $3,000

Inventory, 12/31/18, $3,000

Retained earnings, 12/31/18, $1,340

The firm has 100 shares outstanding. The shares have a $1 par value and when they were issued, the firm received $6,360. The valuation consultants believe the shares are currently worth $10,000. There have been no changes in the shares outstanding in 2019.

Required

Please prepare the missing balance sheet as of 12/31/19 and income statement for the year ended 12/31/19 in good form based upon this information. (Round amounts to the nearest $1.) [40 pts. each statement]

Answer 1