Condensed financial statements for Robeson Company appear below: Comparative Balance Sheets 2014 2013 Cash $ 128,000 $ 201,000 Accounts receivable 472,000 438,000 Inventories 797,000 673,000 Prepaid expenses 81,000 92,000 Plant and equipment (net) 2,655,000 2,428,000 Total assets $4,133,000 $3,832,000 Accounts payable $ 198,000 $ 280,600 Long-term bonds payable 1,000,000 1,000,000 Preferred stock, 10%, $100 par 450,000 450,000 Common stock, no par 1,800,000 1,800,000 Retained earnings 685,000 301,400 Total liabilities and equities $4,133,000 $3,832,000 Income Statement December 31, 2014 Sales, net $5,400,000 Less cost of goods sold 3,240,000 Gross margin 2,160,000 Less operating expenses 1,010,000 Net operating income 1,150,000 Interest expense 80,000 Net income before taxes 1,070,000 Less income taxes 321,000 Net income $ 749,000 There were 72,000 shares of common stock outstanding throughout the 2014. Dividends on common stock amounted to $320,400 and dividends on preferred stock amounted to $45,000. The market value of a share of common stock was $54 at the end of 2014. The income tax rate is 30%. Refer to the preceding financial statements and other information. Calculate the following ratios for 2014. A. Working Capital B. Current Ratio C. Inventory Turnover
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Condensed financial statements for Robeson Company appear below:
Comparative Balance Sheets |
||
|
2014 |
2013 |
Cash |
$ 128,000 |
$ 201,000 |
|
472,000 |
438,000 |
Inventories |
797,000 |
673,000 |
Prepaid expenses |
81,000 |
92,000 |
Plant and equipment (net) |
2,655,000 |
2,428,000 |
Total assets |
$4,133,000 |
$3,832,000 |
|
|
|
Accounts payable |
$ 198,000 |
$ 280,600 |
Long-term bonds payable |
1,000,000 |
1,000,000 |
|
450,000 |
450,000 |
Common stock, no par |
1,800,000 |
1,800,000 |
|
685,000 |
301,400 |
Total liabilities and equities |
$4,133,000 |
$3,832,000 |
Income Statement December 31, 2014 |
|
Sales, net |
$5,400,000 |
Less cost of goods sold |
3,240,000 |
Gross margin |
2,160,000 |
Less operating expenses |
1,010,000 |
Net operating income |
1,150,000 |
Interest expense |
80,000 |
Net income before taxes |
1,070,000 |
Less income taxes |
321,000 |
Net income |
$ 749,000 |
There were 72,000 shares of common stock outstanding throughout the 2014. Dividends on common stock amounted to $320,400 and dividends on preferred stock amounted to $45,000. The market value of a share of common stock was $54 at the end of 2014. The income tax rate is 30%.
Refer to the preceding financial statements and other information. Calculate the following ratios for 2014.
A. |
|
B. |
|
C. |
Inventory Turnover |
D. |
Gross Profit Percentage |
E. |
Accounts Receivable Turnover |
F. |
Debt Ratio |
G. |
Debt to Equity Ratio |
H. |
Profit Margin Ratio |
I. |
Earnings per Share |
J. |
Price/Earnings Ratio |
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