Question

In: Accounting

It is Dec 31, 2015 and Mr. X is reflecting on the first year of his...

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).

Solutions

Expert Solution

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

ekkarill92 answered 8 months ago
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