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	$	350,000
Inventory	$	460,000
Total assets	$	2,560,000

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

Earnings per share	$	5.76
Debt-to-equity ratio		0.920
Accounts receivable turnover		16.0
Current ratio		2.20
Return on total assets		12	%
Times interest earned ratio		7.0
Acid-test ratio		1.20
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 $4,900,000 Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense 64,000 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 $280,000 Bonds payable, 10% Total liabilities Stockholders’ equity: Common stock, $2.90 par value Retained earnings Total stockholders’ equity Total liabilities and stockholders equity

Answer 1

Difference between current ratio and acid test ratio is inventory

Income Statement
For the Year Ended March 31
Sales	$       49,00,000
Cost of goods sold	$       33,30,000
Gross margin	$       15,70,000
Selling and administrative expenses	$       11,22,000
Net operating income	$          4,48,000
Interest expense	$             64,000
Net income before taxes	$          3,84,000
Income taxes (40%)	$          1,53,600
Net income	$          2,30,400

Pepper Industries
Balance Sheet
Mar-31
Current assets:
Cash	$             73,500
Accounts receivable, net	$          2,62,500
Inventory	$          2,80,000
Total current assets	$          6,16,000
Plant and equipment, net	$       13,04,000
Total assets	$       19,20,000
Liabilities:
Current liabilities	$          2,80,000
Bonds payable, 10%	$          6,40,000
Total liabilities	$          9,20,000
Stockholders’ equity:
Common stock, $2.90 par value	$          1,16,000
Retained earnings	$          8,84,000
Total stockholders’ equity	$       10,00,000
Total liabilities and stockholders equity	$       19,20,000