Creating a
• LO4–10
Cadux Candy Company’s income statement for the year ended December 31, 2018, reported interest expense of $2 million and income tax expense of $12 million. Current assets listed in its balance sheet include cash,
Debt to equity ratio | 1.0 |
2.0 | |
Acid-test ratio | 1.0 |
Times interest earned ratio | 17 times |
Return on assets | 10% |
Return on shareholders’ equity | 20% |
Profit margin on sales | 5% |
Gross profit margin (gross profit divided by net sales) | 40% |
Inventory turnover | 8 times |
Receivables turnover | 20 times |
Required:
Prepare a December 31, 2018, balance sheet for the Cadux Candy Company.
Ratio analysis
Ratio analysis is a tool to analyze the financial statements of a company which helps to express a mathematical relationship among the items of financial statements.
Balance sheet
This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.
To prepare: The balance sheet of Company CC for the year ended December, 31 2018.
Explanation of Solution
Prepare the balance sheet of Company CC for the year ended December, 31 2018.
Corporation CC | ||
Balance Sheet | ||
For the year ended December 31, 2018 | ||
Assets | Amount ($ in millions) |
Amount ($ in millions) |
Current assets: | ||
Cash (3) | 10 | |
Accounts receivables (2) | 20 | |
Inventories (1) | 30 | |
Total current assets | 60 | |
Net property, plant, and equipment (5) | 140 | |
Total assets | 200 | |
Liabilities and Shareholders' Equity | Amount ($ in millions) |
Amount ($ in millions) |
Current liabilities (4) | 30 | |
Long-term liabilities (7) | 70 | |
Shareholders’ equity (6) | 100 | |
Total liabilities and shareholders’ equity | 200 |
Table (1)
Working notes:
1)
To determine: The amount of net income.
Solution:
Given, Interest expense is $2 and Income tax expense $12
2)
To determine: The average total assets using return on assets ratio.
Solution:
3)
To determine: The amount of net sales.
Solution:
4)
To determine: The gross profit and cost of goods sold.
Solution:
5)
To determine: The amount of average inventory.
Solution:
6)
To determine: The amount of average receivables.
Solution:
7)
To determine: The cash balance.
Solution:
By using the above equation, determine amount of cash.
8)
To determine: The amount of current liabilities.
Solution:
9)
To determine: The amount of non-current assets.
Solution:
10)
To determine: The amount of average shareholders’ equity.
Solution:
11)
To determine: The amount of long-term liabilities
Solution:
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Chapter 4 Solutions
SPICELAND GEN CMB LL INTRM ACCTG; CNCT
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The following discussion took place between Lucas Hunter and Simmons' controller, John Jameson, in January, after the close of the fiscal year: Lucas: Ive been reviewing our financial statements for the last year. I am disappointed that our net income per share has dropped by 10% from last year. This won't look good to our shareholders. Is there anything we can do about this? John. What do you means? The past is the past, and the numbers are in. There isnt much that can be done about it Our financial statements were prepared according to generally accepted accounting principles, and I dont see much leeway for significant change at this point. Lucan No, no. Ive not suggesting that we cook the books. But look at the cash flow from operating activities on the statement of cash flows. The cash flow from operating activities has increased by 20%. This is very good newsand. I might add, useful information. The higher cash flow from operating activities will give our creditors comfort. John. Well, the cash flow from operating activities is on the statement of cash flows, so I guess users will be able to see the improved cash flow figures there Lucas: This is true, but somehow I think this information should be given a much higher profile. I don't like this information being buried in the statement of cash flows. You know as well as I do that many users will focus on the income statement Therefore. I think we ought to include an operating cash flow per share number on the face of the income statementsomeplace under the earnings per share number In this way, users will get the complete picture of our operating performance. Yes, our earnings per share dropped this year, but our cash flow from operating activities improved! And all the information is in one place where users can see and compare the figures. What do you think? 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Investments are classified as available for sale. The investments at cost and fair value on December 31, Year 1, are as follows: No. of Shares Cost per Share Total Cost Total Fair Value Alvarez Inc stock 960 38,00 36,480 39,936 Hirsch Inc. stock 1,900 28,80 4,720 60,040 91,200 99,976 Note 2. The Investment in Wright Co. stack is an equity method investment representing 30% of the outstanding shares of Wright Co. The following selected investment transactions occurred during Year 2: Mar. 18. Purchased 800 shares of Richter Inc. at 40, including brokerage commission. Richter is classified as an available-for-sale security. July 12. Dividends of 12,000 art: received on the Wright Co. investment. Oct 1. Purchased 24,000 of Toon Co. 4%, 10-year bonds at 100. the bonds are classified as available for sale. The bonds pay interest on October 1 and April 1. December 31. Wright Co. reported a total net income of 80,000 for Year 2. Teasdale recorder equity earnings for its share of Wright Co. net income. 31. Accrued interest for three months on the Toon Co. bonds purchased on October 1. 31. Adjusted the available-for-sale investment portfolio to fair value, using the following fair value per-share amounts: Available for Sale Investments Fair Value Alvarez Inc. stock 41,50 per share Hirsch Inc stock 26,00 per share Richter Inc. stock 48,00 per share Toon Co. bonds 101 per 100 of face amount 31. Closed the Teasdale Inc. net income of 51,240. Teasdale Int. paid no dividends during the year. Instructions Determine the missing letters in the unclassified balance sheet. 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