The information on the following page was obtained from the records of Breanna Inc.: Accounts receivable $ 10,700 Accumulated depreciation 50,700 Cost of goods sold 121,000 Income tax expense 8,500 Cash 62,000 Net sales 203,000 Equipment 127,000 Selling, general, and administrative expenses 36,000 Common stock (8,000 shares) 94,000 Accounts payable 13,900 Retained earnings, 1/1/19 28,800 Interest expense 5,900 Merchandise inventory 38,500 Long-term debt 35,000 Dividends declared and paid during 2019 15,800 Except as otherwise indicated, assume that all balance sheet items reflect account balances at December 31, 2019, and that all income statement items reflect activities that occurred during the year ended December 31, 2019. There were no changes in paid-in capital during the year.Required: Prepare an income statement and statement of changes in stockholders' equity for the year ended December 31, 2019, and a balance sheet at December 31, 2019, for Breanna Inc. Based on the financial statements that you have prepared for part a, answer the questions in parts b-e. What is the company's average income tax rate? What interest rate is charged on long-term debt? Assume that the year-end balance of long-term debt is representative of the average long-term debt account balance throughout the year. What is the par value per share of common stock? What is the company's dividend policy (i.e., what proportion of the company's earnings is used for dividends)?
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.
The information on the following page was obtained from the records of Breanna Inc.:
| $ | 10,700 | |
| 50,700 | ||
| Cost of goods sold | 121,000 | |
| Income tax expense | 8,500 | |
| Cash | 62,000 | |
| Net sales | 203,000 | |
| Equipment | 127,000 | |
| Selling, general, and administrative expenses | 36,000 | |
| Common stock (8,000 shares) | 94,000 | |
| Accounts payable | 13,900 | |
| 28,800 | ||
| Interest expense | 5,900 | |
| Merchandise inventory | 38,500 | |
| Long-term debt | 35,000 | |
| Dividends declared and paid during 2019 | 15,800 | |
Except as otherwise indicated, assume that all
Required:
- Prepare an income statement and statement of changes in
stockholders' equity for the year ended December 31, 2019, and a balance sheet at December 31, 2019, for Breanna Inc. Based on the financial statements that you have prepared for part a, answer the questions in parts b-e. - What is the company's average income tax rate?
- What interest rate is charged on long-term debt? Assume that the year-end balance of long-term debt is representative of the average long-term debt account balance throughout the year.
- What is the par value per share of common stock?
- What is the company's dividend policy (i.e., what proportion of the company's earnings is used for dividends)?
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