For the purpose of borrowing $100,000 (10-year loan with 12% interest annually), Shannon Merchandising Company has submitted the following audited Balance Sheet and Income Statement to Bank. Statement Of Financial Position (Balance Sheet) As of Dec. 31st, 2021 Cash $40,000 Accounts receivable 170,000 Merchandise Inventory 220,000 Land 50000 Building and equipment (net) 470,000 Total assets $950,000 Accounts payable $140,000 Wages payable 100,000 Notes Payable (5-year note) 300,000 Total liabilities 540,000 Common stock, $10 par 310,000 Retained earnings 110,000 Total stockholders' equity 410000 Total liabilities and stockholders' equities $950,000
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
For the purpose of borrowing $100,000 (10-year loan with 12% interest annually), Shannon Merchandising Company has submitted the following audited Balance Sheet and Income Statement to Bank.
| As of Dec. 31st, 2021 | |
| Cash | $40,000 |
| 170,000 | |
| Merchandise Inventory | 220,000 |
| Land | 50000 |
| Building and equipment (net) | 470,000 |
| Total assets | $950,000 |
| Accounts payable | $140,000 |
| Wages payable | 100,000 |
| Notes Payable (5-year note) | 300,000 |
| Total liabilities | 540,000 |
| Common stock, $10 par | 310,000 |
| 110,000 | |
| Total |
410000 |
| Total liabilities and stockholders' equities | $950,000 |
| Income Statement | |
| For the Year Ending December 31, 2021 | |
| Revenues: | |
| Sales | $2,880,000 |
| Expenses: | |
| Cost of goods sold | 1,512,000 |
| Operating expenses | 1,128,000 |
| Interest expense | 40,000 |
| Income tax expense | 80,000 |
| Total Expenses | 2,760,000 |
| Net income | $120,000 |
Assume you are the bank loan officer of the bank and have to decide whether to approve or reject Shannon's loan application.
As first step, you would like to determine whether Shannon Company currently is overleveraged or not. If a company's debt level is too high (overleveraged) it affects its ability to pay the interest, principal repayments, and finds it challenging to afford its day-to-day running costs due to its debt weight. State the name of a popular ratio that is used for this purpose and compute the amount of the ratio for Shannon Company. Example of Answer: 20% No decimal points, space, or comma.
Name of the ratio (spell out complete name) =
The amount of ratio =
As second step, you would like to determine whether Shannon Company has a strong earning power to afford the interest payments. State the name of a popular ratio that is used for this purpose and compute the amount of the ratio for Shannon Company. Example of Answer: 20.14% Two decimal points. No space or comma.
Name of the ratio (spell out complete name) =
The amount of ratio =
As third step, you would like to determine whether Shannon Company has the necessary liquidity to pay its operating day-today bills on a timely basis without any difficulty. State the name of a popular ratio that is used for this purpose and compute the amount of the ratio for Shannon Company. Example of Answer: 1.40 Two decimal points. No space, dollar sign, or comma.
Name of the ratio (spell out complete name) =
The amount of ratio =
Your Recommendation: Would you approve the loan application of Shannon Company based upon your analysis in the above? Example of Answer: Yes or No
Your answer =
Finally, Compute Earnings Per Share for 2021 for Shannon Company. Example of Answer: $1.40 Two decimal points. No space, or comma.
Earnings per Share =
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