Understanding the Information in Financial Statements Today is April 1 and Dale has just received the annual report of Clam Chowder Company, in which he owns stock. Displayed below are the comparative balance sheet and income statement that have drawn his attention.
|
Balance Sheet |
Dec. 31, |
Dec. 31, |
Income Statement |
For Year |
|
Cash |
$1,244 |
$1,512 |
Sales revenue |
$485,000 |
|
Accounts receivable |
6,914 |
5,886 |
Cost of goods sold |
300,700 |
|
Inventory |
11,211 |
9,099 |
Gross profit |
184,300 |
|
Buildings and equipment |
49,900 |
46,500 |
Operating expenses: |
|
|
Accumulated depreciation |
5,319 |
2,497 |
Advertising |
31,330 |
|
Land |
22,000 |
22,000 |
Depreciation |
2,822 |
|
Total assets |
$85,950 |
$82,500 |
Utilities |
19,200 |
|
Accounts payable |
$2,313 |
$1,988 |
Wages |
113,698 |
|
Interest payable |
0 |
2,563 |
Operating income |
17,250 |
|
Wages payable |
7,364 |
6,327 |
Interest expense |
2,400 |
|
7%, 10 year note payable |
20,000 |
20,000 |
Pretax income |
14,850 |
|
Contributed capital42,300 |
42,300 |
42,300 |
Income tax expense |
5,200 |
|
Retained capital13,973 |
13,973 |
9,322 |
Net income |
$9,650 |
|
Total liabilities and equity |
$85,950 |
$82,500 |
Earnings per share |
$3.86 |
After reviewing this information, Dale makes the following comments.
1. I”m surprised that the value of the company”s land has not increased. Prices have been increasing rapidly in the area the company is located.
2. I”m sure that I received a dividend from this company, but they don”t report that they paid any.
3. I don”t see how the company”s cash balance could have declined when it took in $485,000 in cash from sales to customers.
4. I see that the value of the buildings and equipment declined by $2,822. That seems about right.
5. I don”t understand why the company”s highly trained workforce is not listed as an asset. It is one of the most important resources that the company has.
6. One thing I really like about this company is the up to the minute financial reports it provides.
7. It”s good to see that the value of the inventory has increased since last year.
Required
A. Help Dale better understand these financial statements by responding to each of his comments. Explain whether you agree or disagree with each comment and why.
B. Did the company declare and pay cash dividends during the year just ended? If so, what total amount was distributed?
C. Approximately how many shares of stock does the company have outstanding?