Question

In: Accounting

Edman Company is a merchandiser that has provided the following balance sheet and income statement for...

Edman Company is a merchandiser that has provided the following balance sheet and income statement for this year.

Beginning Balance Ending Balance
Assets
Cash $ 62,800 $ 150,000
Accounts receivable 160,000 180,000
Inventory 230,000 240,000
Property, plant & equipment (net) 833,000 793,000
Other assets 37,000 37,000
Total assets $ 1,322,800 $ 1,400,000
Liabilities & Stockholders’ Equity
Accounts payable $ 70,000 $ 80,000
Bonds payable 550,000 550,000
Common stock 410,000 410,000
Retained earnings 292,800 360,000
Total liabilities & stockholders’ equity $ 1,322,800 $ 1,400,000
This Year
Sales $ 2,500,000
Variable expenses:
Cost of goods sold 1,600,000
Variable selling expense 240,000
Total variable expenses 1,840,000
Contribution margin 660,000
Fixed expenses:
Fixed selling expenses 220,000
Fixed administrative expenses 300,000
Total fixed expenses 520,000
Net operating income 140,000
Interest expense (8%) 44,000
Net income before tax 96,000
Tax expense (30%) 28,800
Net income $ 67,200

Req A
1. Inventory _____

2. Accounts Payable _____

3. Retained Earnings ____

Reg B

1. Inventory ____

2. Accounts Payable ____

3. Retained Earnings ____

Reg C

1. What is the company’s estimated average total liabilities and stockholders’ equity for next year?

To evaluate alternative 1, refer to the “Requirement 3 Financials” tab within your template. Assume the company streamlines it working capital management practices with the following estimated impacts:

  • Next year’s ending balance in accounts receivable decreases by $80,000 compared to its beginning balance.
  • Next year’s ending balance in inventory decreases by $120,000 compared to its beginning balance.
  • Next year’s ending balance in property, plant, and equipment (net) decreases by $40,000 compared to its beginning balance to reflect next year’s depreciation expense.
  • Next year’s ending balance in accounts payable decreases by $40,000 compared to its beginning balance.
  • Next year’s ending balance in bonds payable decreases by $300,000 compared to its beginning balance to reflect a retirement of bonds payable.
  • Next year’s ending balances in other assets and common stock are the same as their beginning balances.
  • Next year’s total sales, variables expenses, fixed expenses, and net operating income are the same as this year.

a. Based on the above estimated impacts, use Excel formulas to calculate ending balances as needed in column C. What is the ending balance in the following accounts?

b. Create formulas within column D that calculate next year’s average balances for all balance sheet accounts (except Cash which will automatically be computed for you). What is the average balance in the following accounts?

c. What is the company’s estimated average total liabilities and stockholders’ equity for next year?

Solutions

Expert Solution

Introduction:

This question is related with financial statements of the company. Here company wants it know about Inventory, Trade receivables and Trade payables. Also on the basis of additional information given in question estimated balance sheet is prepared.

PART-A

BALANCE SHEET

Balance Sheet

Particulars

Beginning Balance

Ending Balance

Assets

$

$

Cash

62,800

1,50,000

Accounts receivable

1,60,000

1,80,000

Inventory

2,30,000

2,40,000

Property, plant & equipment (net)

8,33,000

7,93,000

Other assets

37,000

37,000

Total assets

13,22,800

14,00,000

Liabilities & Stockholders’ Equity

Accounts payable

70,000

80,000

Bonds payable

5,50,000

5,50,000

Common stock

4,10,000

4,10,000

Retained earnings

2,92,800

3,60,000

Total liabilities & stockholders’ equity

13,22,800

14,00,000

PART-B

INCOME STATEMENT

Income Statement

$

$

Sales

25,00,000

Variable expenses:

Cost of goods sold

16,00,000

Variable selling expense

2,40,000

18,40,000

Contribution margin

6,60,000

Fixed expenses:

Fixed selling expenses

2,20,000

Fixed administrative expenses

3,00,000

5,20,000

Net operating income

1,40,000

Interest expense (8%)

44,000

Net income before tax

96,000

Tax expense (30%)

28,800

Net income

67,200

Req-A

Beginning Balances:               $

1. Inventory                              $ 230000                      

2. Accounts Payable                $ 70000               

3. Retained Earnings               $ 292800             

Req-B

Ending Balance:                     $

1. Inventory                           $ 240000   

2. Accounts Payable                $ 80000

3. Retained Earnings               $ 360000

Req-C

Estimated Balance sheet for next Year

Particulars

Beginning Balance

Ending Balance

Increase/ Decrease

Estimated Balances

Assets

$

$

$

Cash

62,800

1,50,000

5,27,200

Accounts receivable

1,60,000

1,80,000

-80,000

1,00,000

Inventory

2,30,000

2,40,000

-1,20,000

1,20,000

Property, plant & equipment (net)

8,33,000

7,93,000

-40,000

7,53,000

Other assets

37,000

37,000

37,000

Total assets

13,22,800

14,00,000

15,37,200

Liabilities & Stockholders’ Equity

Accounts payable

70,000

80,000

-40,000

40,000

Bonds payable

5,50,000

5,50,000

-3,00,000

2,50,000

Common stock

4,10,000

4,10,000

4,10,000

8,20,000

Retained earnings

2,92,800

3,60,000

67,200

4,27,200

Total liabilities & stockholders’ equity

13,22,800

14,00,000

15,37,200

Summary: Estimated balalnce sheet will helpful to the company for taking decision related with up coming year. Cash balance will be the differencial amount on assets side.


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