Mr. M is the owner of EXLO Inc. Mr. M has just received his end of the year financial statements from his accountant. When he sees his gross and net income he is discouraged. With almost Rs. 250,000 in gross profit he just doesn’t understand why he is always short on cash to pay his employees and suppliers. One of his largest suppliers notified him just last month that they would no longer extend him credit and he would have to pre-pay all of his orders. He puts a call into his accountant to set up a meeting with her to discuss the financial health of his business. Required: a) Using your understanding of financial statements how do you find the following balance sheet related with income statement? b) If you are provided the information that all of rent expense of the company is related to the next year, do you think that this will improve company’s profits? If yes, explain how? c) What would be the treatment of Rent expense if it is related to the next financial year?Make necessary adjustments. Financial Statements: EXLO Inc. Income Statement For the year ended December 31, 20XX Merchandise Sales Rs. 500,000 Cost of Goods Sold Rs. 255,000 Gross Profit Rs. 245,000 Wage Expense Rs. 140,000 Rent Expense Rs. 45,000 General and Administrative Rs. 45,000 Total Expenses Rs. 230,000 Earnings Before Interest & Taxes (EBIT) Rs. 15,000 Interest Rs. 5,000 Income before tax Rs. 10,000 Tax (@ 25% rate) Rs. 2,500 Net Income/(Loss) Rs. 7,500 EXLO Inc. Balance Sheet As of December 31, 20XX Assets Current Assets Cash and Cash Equivalents Rs. 29,500 Accounts Receivable Rs. 10,000 Merchandise Inventory Rs. 100,000 Prepaid Expenses Rs. 7,500 Total Current Assets Rs. 147,000 Property, Plant, and Equipment Rs. 5,000 Total Assets Rs. 152,000 Liabilities Current Liabilities Accounts Payable Rs. 74,250 Wages Payable Rs. 10,250 Total Current Liabilities Rs. 84,500 Long-Term Debt Rs. 55,000 Total Liabilities Rs. 139,500 Owner's Equity Rs. 12,500 Total Liabilities and Owner's Equity Rs. 152,000
Mr. M is the owner of EXLO Inc. Mr. M has just received his end of the year financial statements from his accountant. When he sees his gross and net income he is discouraged. With almost Rs. 250,000 in gross profit he just doesn’t understand why he is always short on cash to pay his employees and suppliers. One of his largest suppliers notified him just last month that they would no longer extend him credit and he would have to pre-pay all of his orders. He puts a call into his accountant to set up a meeting with her to discuss the financial health of his business.
Required:
a) Using your understanding of financial statements how do you find the following
b) If you are provided the information that all of rent expense of the company is related to the next year, do you think that this will improve company’s profits? If yes, explain how?
c) What would be the treatment of Rent expense if it is related to the next financial year?Make necessary adjustments.
Financial Statements:
EXLO Inc.
Income Statement
For the year ended December 31, 20XX
Merchandise Sales Rs. 500,000
Cost of Goods Sold Rs. 255,000
Gross Profit Rs. 245,000
Wage Expense Rs. 140,000
Rent Expense Rs. 45,000
General and
Administrative Rs. 45,000
Total Expenses Rs. 230,000
Earnings Before Interest &
Taxes (EBIT) Rs. 15,000
Interest Rs. 5,000
Income before tax Rs. 10,000
Tax (@ 25% rate) Rs. 2,500
Net Income/(Loss) Rs. 7,500
EXLO Inc.
Balance Sheet
As of December 31, 20XX
Assets
Current Assets
Cash and Cash
Equivalents Rs. 29,500
Merchandise
Inventory Rs. 100,000
Prepaid Expenses Rs. 7,500
Total Current
Assets Rs. 147,000
Property, Plant, and
Equipment Rs. 5,000
Total Assets Rs. 152,000
Liabilities
Current Liabilities
Accounts Payable Rs. 74,250
Wages Payable Rs. 10,250
Total Current
Liabilities Rs. 84,500
Long-Term Debt Rs. 55,000
Total Liabilities Rs. 139,500
Owner's Equity Rs. 12,500
Total Liabilities and Owner's
Equity Rs. 152,000
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