Prepare an income statement, balance sheet, and statement of changes in owners’ equity; analyze results The following information was obtained from the records of Breanna, Inc.:
|
Accounts receivable |
$ 10,000 |
|
Accumulated depreciation. |
52,000 |
|
Cost of goods sold |
128,000 |
|
Income tax expense |
8,000 |
|
Cash |
65,000 |
|
Sales |
200,000 |
|
Equipment. |
120,000 |
|
Selling, general, and administrative expenses |
34,000 |
|
Common stock (9,000 shares) |
90,000 |
|
Accounts payable |
15,000 |
|
Retained earnings, 1/1/10. |
23,000 |
|
Interest expense |
6,000 |
|
Merchandise inventory |
37,000 |
|
Long term debt |
40,000 |
|
Dividends declared and paid during 2010 |
12,000 |
Except as otherwise indicated, assume that all balance sheet items reflect account balances at December 31, 2010, and that all income statement items reflect activities that occurred during the year ended December 31, 2010. There were no changes in paid in capital during the year.
Required:
a. Prepare an income statement and statement of changes in owners’ equity for the year ended December 31, 2010, and a balance sheet at December 31, 2010, for Breanna, Inc.
Based on the financial statements that you have prepared for part a, answer the questions in parts b–e. Provide brief explanations for each of your answers and state any assumptions you believe are necessary to ensure that your answers are correct.
b. What is the company’s average income tax rate?
c. What interest rate is charged on long term debt?
d. What is the par value per share of common stock?
e. What is the company’s dividend policy (i.e., what proportion of the company’s earnings are used for dividends)?