Question

Trevor’s furniture company accounts’ information for 2019 is as follows:

near-cash is $500, the amount of money that customers currently owe to the com-
pany for goods that were purchased on credit is $10,000, the amount of accounts

payable is $9,000. Products in inventory are worth $40,000, accumulated deprecia-
tion is 15% of total gross fixed assets. Lands, buildings and equipment were valued

$126,000. 5-Year Debt is $22,950, common stock is $26,000 and retained earnings
at the end of the year is $31,058. Gross profit is $64,000. Fixed cash operating
expenses, variable operating expenses and depreciation are $21,000, $16,000 and

$15,000 respectively. Interest expenses are $6,000 and the tax rate is 21%. Addi-
tionally, regarding stock, the paid in capital in excess of par is $0.75 per common

stock. The number of common stock is 74,000. On the other hand, the cost of
goods sold is half as much as sales. The preferred stock dividend rate is 2% for a
face-value stock value of $9,000. A short-term bank loan of $3,000 is going to be
paid o↵ next month. Finally, promised bonuses for employees (to be paid o↵ soon)
accrue $1,092.

(a) Construct the income statement for this company.
(b) Construct the balance-sheet statement for this company.
(c) Calculate the current ratio and ROE.

Answer 1

Assume Sales is S

So COGS is 0.5S

Gross Profit =S-0.5S=0.5S

Gross Profit =$64,000

So Sales ==64000/0.5=$128000

Ans a.

Let us construct the Income statement

Trevor's Furniture Company
Income Statement
for the Year 2019
Particulars	Amt $
Sales	128,000
Less : Cost of Goods Sold	64,000
Gross Profit	64,000
Operating Expense:
Fixed Cash expense	21,000
Variable cash expense	16,000
Depreciation expense	15,000
Bonus expense	1,092
Total Operating Expense	53,092
EBIT	10,908
Interest Expense	6,000
EBT	4,908
Income Tax @21%	1,031
Net Profit /(Loss)	3,877
Assuming bonus accrued is not part of operating expenses given.

Ans b.
Trevor's Furniture Company
As on Dec 31,2019
Assets	Amt $	Liabilities & Equity	Amt $
Current Assets		Current Laibilities
Cash & Cash Equivalents	500	Accounts Payable	9,000
Accounts Receivable	10,000	Short term Bank Loan	3,000
Inventory	40,000	Bonus payable	1092
Total Current Assets	50,500	Total .Current Laibilities	13,092
		LT -Loan	22,950
Fixed Asset		Total Liabilities	36,042
Gross Land , Buildings , Equipments	126,000	Stockholders' Equity
Accumlated Depreciation(15% of Gross Fixed asset)	(18,900)	Common stock (74000, issued,at par $0.35)	26,000
Net Fixed Asset	107,100	Additional paid in capital in excess of par =	55,500
		Preferred stock 2%	9,000
		Retained Earning	31,058
		Total Stockholders' Equity	121,558
Total Assets	157,600	Total Liabilities & Equity	157,600

Ans c.
Current Ratio=Current Assets/Current Liabilties =	3.86
ROE =Net Income/Equity =	2.46%