Sunrise Bakery Inc. Income Statement Year Ended October 31, 2022 Sales revenue $462,500 Cost of goods sold 231,250 Gross profit 231,250 Operating expenses Salaries and wages expense $92,500 Depreciation expense 3,900 Other operating expenses 35,987 132,387 Income from operations 98,863 Other expenses Interest expense 413 Income before income tax 98,450 Income tax expense 19,690 Net income $ 78,760 Sunrise Bakery Inc. Balance Sheet October 31, 2022 Assets Current assets Cash $86,219 Accounts receivable 3,250 Inventory 17,897 Prepaid expenses 6,300 $113,666 Property, plant, and equipment Furniture and fixtures $12,500 Accumulated depreciation— furniture and fixtures (1,250) 11,250 Computer equipment 4,200 Accumulated depreciation— computer equipment (600) 3,600 Kitchen equipment 29,000 Accumulated depreciation— kitchen equipment (2,050) 26,950 41,800 Total assets $155,466 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 5,848 Income tax payable 19,690 Dividends payable 700 Salaries and wages payable 2,250 Interest payable 188 Note payable—current portion 4,000 $ 32,676 Long-term liabilities Note payable—long-term portion 6,000 Total liabilities 38,676 Stockholders’ equity Paid-in capital Preferred stock, 2,800 shares issued and outstanding $ 14,000 Common stock, 25,930 shares issued, 25,180 outstanding 25,930 39,930 Retained earnings 77,360 Total paid-in capital and retained earnings 117,290 Less: Treasury stock (750 common shares) 500 Total stockholders’ equity 116,790 Total liabilities and stockholders’ equity $155,466 dditional information: You and Greg are thinking about borrowing an additional $20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semiannual installment payments of $2,500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance. Required for Part B Calculate the following ratios: current ratio, gross profit rate, accounts receivable turnover, profit margin, inventory turnover, asset turnover, debt to assets, return on assets, times interest earned and return on common stockholders’ equity What alternatives could Sunrise Bakery consider instead of bank financing?
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.
Sunrise Bakery Inc.
Income Statement
Year Ended October 31, 2022
Sales revenue $462,500
Cost of goods sold 231,250
Gross profit 231,250
Operating expenses
Salaries and wages expense $92,500
Depreciation expense 3,900
Other operating expenses 35,987 132,387
Income from operations 98,863
Other expenses
Interest expense 413
Income before income tax 98,450
Income tax expense 19,690
Net income $ 78,760
Sunrise Bakery Inc.
October 31, 2022
Assets
Current assets
Cash $86,219
Inventory 17,897
Prepaid expenses 6,300 $113,666
Property, plant, and equipment
Furniture and fixtures $12,500
furniture and fixtures (1,250) 11,250
Computer equipment 4,200
Accumulated depreciation—
computer equipment (600) 3,600
Kitchen equipment 29,000
Accumulated depreciation—
kitchen equipment (2,050) 26,950 41,800
Total assets $155,466
Liabilities and
Current liabilities
Accounts payable $ 5,848
Income tax payable 19,690
Dividends payable 700
Salaries and wages payable 2,250
Interest payable 188
Note payable—current portion 4,000 $ 32,676
Long-term liabilities
Note payable—long-term portion 6,000
Total liabilities 38,676
Stockholders’ equity
Paid-in capital
Common stock, 25,930 shares issued, 25,180 outstanding 25,930 39,930
Total paid-in capital and retained earnings 117,290
Less:
Total stockholders’ equity 116,790
Total liabilities and stockholders’ equity $155,466
dditional information:
You and Greg are thinking about borrowing an additional $20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semiannual installment payments of $2,500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance.
Required for Part B
- Calculate the following ratios:
current ratio , gross profit rate, accounts receivable turnover, profit margin, inventory turnover, asset turnover, debt to assets, return on assets, times interest earned and return on common stockholders’ equity
- What alternatives could Sunrise Bakery consider instead of bank financing?
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