In: Accounting
It is Dec 31, 2015 and Mr. X is reflecting on the first year of his new business, OBD Inc. He has hired you to create financial statements for the company and you agree. You interview him – and he shares with you a great deal of information – which is listed below. He asks that you compile an income statement and balance sheet.
Sales were $1,000,000
Gross profit margin was 60%
Operating margins were 12%
The Bank of Toronto provided a loan on Jan 1, 2015 worth $300,000. The annual interest is 8% and is compounded annually. Interest only payments are needed – until the loan is due in 10 years, where a balloon payment for the full balance must be paid.
The combined federal and provincial tax rates is 27%
Mr. X knows that the ending cash balance in his company is 200,000.
Accounts Receivables is 10% of sales
Inventory is 15% of sales
Accounts Payable is 5% of sales
Accrued expenses payable is 5.5% of sales
Capital equipment purchases were made at the start of the year. These total $50,000. These depreciate at 10% per year
Mr. X will provided all other capital in the form of equity financing
As a smart young consultant, Mr. X has asked you to figure out his SG&A (Selling General and Administrative expenses).
OBD Inc. | |
Income Statement | |
For the Year Ended December 31, 2015 | |
Sales | 1000000 |
Cost of goods sold | 400000 |
Gross profit (60% x $1000000) | 600000 |
Operating expenses: | |
Depreciation expense | 5000 |
Selling and administrative expense | 475000 |
Operating income (12% x $1000000) | 120000 |
Interest expense (8% x $300000) | 64000 |
Income before income taxes | 56000 |
Income tax expense (27% x $56000) | 15120 |
Net income | 40880 |
OBD Inc. | |
Balance Sheet | |
December 31, 2015 | |
Assets | |
Cash | 200000 |
Accounts receivable (10% x $1000000) | 100000 |
Inventory (15% x $1000000) | 150000 |
Equipment | 50000 |
Less: Accumulated depreciation (10% x $50000) | -5000 |
Total assets | 495000 |
Liabilities and Owner's Equity | |
Accounts payable (5% x $1000000) | 50000 |
Accrued expenses payable (5.5% x $1000000) | 55000 |
Long-term loan payable | 300000 |
Capital | 49120 |
Retained earnings | 40880 |
Total liabilities and owner's equity | 495000 |