Chapter 2, Problem 2.20P

Sub Part-1

To determine

Income Statement:

The Operating income of the business is the income generated from the main operations of the business. This includes expenses such as cost of goods sold, selling expense and admin expenses. But does not include expenses like Loss on sale of assets, interest charges and also does not include the non-operating incomes like gain on sale of assets, interest revenue, etc.

The Net income is computed by deducting the non-operating expense and adding up non-operating incomes in the net operating incomes of the year. After making the above adjustment, the income tax expense has been deducted to arrive at the net income earned for the year.

Retained Earnings balance at the end:

The Retained earnings at the end of the year shall be computed by adding the net income for the year in the beginning balance and then deducting the dividend paid during the year.

Balance Sheet:

The balance sheet of the firm is prepared by listing all the assets on one hand and all the liabilities and stockholder’s equity on the other hand. The total of both the sides must match to verify that the double-entry aspects of the business have been computed.

The amount of difference between current assets and current liabilities.

Sub Part-2

To determine

Average Income Tax rate:

The Average Income Tax rate is computed by dividing the income tax expense paid during the year with the pre-tax income computed, as expressed in terms of percentage.

The average income tax rate for income tax paid for the year.

Sub Part-3

To determine

The Interest rate charged on Long term debts.

Sub Part-4

To determine

The par value per share shall be computed.

Sub Part-5

To determine

The dividend payout policy of the company.