Chapter 2, Problem 2.19P

Problem 2.19

LO 2, 3, 4

Prepare an income statement, balance sheet, and statement of changes in stockholders’ equity; analyze results

The information on the following page was obtained from the records of Breanna, Inc.:

Accounts receivable	$ 40.000
Accumulated depreciation	208,000
Cost of goods sold	512,000
Income tax expense	32,000
Cash	260.000
Sales	800,000
Equipment	480,000
Selling, general, and administrative expenses	136,000
Common stock (36,000 shares)	360.000
Accounts payable	60,000
Retained earnings, 1/1/16	92,000
Interest expense	24,000
Merchandise inventory	148.000
Long-term debt	160,000
Dividends declared and paid during 2016	48,000

Except as otherwise indicated, assume that all balance sheet items reflect account balances at December 31, 2016, and that all income statement items reflect activities that occurred during the year ended December 31, 2016. There were no changes in paid in capital during the year.

Required:

1. Prepare an income statement and statement of changes in stockholders’ equity for the year ended December 31, 2016, and a balance sheet at December 31, 2016, for Breanna, Inc.

Based on the financial statements that you have prepared for part a, answer the questions in parts b-e. Provide brief explanations for each of your answers and state any assumptions you believe are necessary to ensure that your answers are correct.

What is the company’s average income tax rate?

What interest rate is charged on long-term debt?

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 are used for dividends)?