b) Compute the accounts receivable turnover and times interest earned of Upper Company. Shown below are the comparative statement of financial position, income statement and statementof retained earnings for the year ended 31 December 2020.UPPER COMPANYStatement of Financial Position31 December 202020192020Assets$80,000$50,000$40,000$50,000$17,000$850,000$20,000Cash and cash equivalentsAccounts receivableInventoryInvestment in trading securities (1)Property, plant and equipment (netof accumulated depreciation) (2)$600,000$820,000$2,653.000$3,540,000TotalsLiabilities & EquityNotes payable (short-term) (2)Accounts payableSalary payableInterest payableDividend payableNotes payable (long-term) (3)Share capital (4)Retained earnings$30,000$20,000$25,000$40,000$390,000$200,000$115,000$820,000$1,550,000$63,000$12,000$20,000$20,000$640,000$700,000$535,000$3,540,000TotalsUPPER COMPANYRetained Earnings StatementFor the Year Ended 31 December 2020Retained earnings, 1 January 2020$115,000$440,000$20,000Add: Net incomeDeduct: Dividends declared (5)Retained earnings, 31 December 2020$420,000$535,000 UPPER COMPANYINCOME STATEMENTFor the Year Ended 31 December 2020Sales$1,697,900$408,500$1,289,400Cost of goods soldGross profitAdministrative expenses (6)Selling expensesOther income: Gain on sale of trading securities (1)Income from operationsInterest expense$545,000$215,000$760,000$19,500548,900$14,000$534,900$94,900$440,000Income before income taxesIncome taxesNet incomeNotes(1) The trading securities held at 31 December 2019 were all sold during 2020.(2) Increase of short term notes payable represents short-term borrowing from bank.(3) There are additions of $2,200,000 to property, plant and equipment during 2020. They arepartly financed by the issue of long term notes payable. No other long term notes payableare issued for other purpose.(4) The company has issued new shares for cash in 2020.(5) Dividend of $20,000 was declared on 1 December 2020, payable on 31 January 2021.(6) Included in administrative expenses are depreciation expense of $147,000.

Times interest earned = Earning before Interest and Taxes / Interest expenses Accounts receivables…

UPPER COMPANY INCOME STATEMENT For the Year Ended 31 December 2020 $1,697,900 $408,500 $1,289,400 Sales Cost of goods sold Gross profit Administrative expenses (6) Selling expenses Other income: Gain on sale of trading securities (1) Income from operations Interest expense Income before income taxes $545,000 $215,000 $760,000 $19,500 548,900 $14,000 $534,900 $94,900 $440,000 Income taxes Net income Notes (1) The trading securities held at 31 December 2019 were all sold during 2020. (2) Increase of short term notes payable represents short-term borrowing from bank. (3) There are additions of $2,200,000 to property, plant and equipment during 2020. They are partly financed by the issue of long term notes payable. No other long term notes payable are issued for other purpose. (4) The company has issued new shares for cash in 2020. (5) Dividend of $20,000 was declared on 1 December 2020, payable on 31 January 2021. (6) Included in administrative expenses are depreciation expense of $147,000.

UPPER COMPANY INCOME STATEMENT For the Year Ended 31 December 2020 $1,697,900 $408,500 $1,289,400 Sales Cost of goods sold Gross profit Administrative expenses (6) Selling expenses Other income: Gain on sale of trading securities (1) Income from operations Interest expense Income before income taxes $545,000 $215,000 $760,000 $19,500 548,900 $14,000 $534,900 $94,900 $440,000 Income taxes Net income Notes (1) The trading securities held at 31 December 2019 were all sold during 2020. (2) Increase of short term notes payable represents short-term borrowing from bank. (3) There are additions of $2,200,000 to property, plant and equipment during 2020. They are partly financed by the issue of long term notes payable. No other long term notes payable are issued for other purpose. (4) The company has issued new shares for cash in 2020. (5) Dividend of $20,000 was declared on 1 December 2020, payable on 31 January 2021. (6) Included in administrative expenses are depreciation expense of $147,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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