Chapter 3, Problem 8QP

a)

Summary Introduction

To determine: Current assets.

Explanation of Solution

Note:

Current assets is calculated by adding cash, receivables and inventories.

Calculation of current assets:

$\begin{array}{c}\text{Current}\text{assets}=\text{Cash}+\text{Receivables}+\text{Inventories}\\ =\text{\$15}+\$35+\$50\\ =\$100\\ \end{array}$

Hence, current assets is $100

b)

Summary Introduction

To determine: Net fixed assets.

Explanation of Solution

Note:

Net fixed assets are calculated by subtracting depreciation from the fixed assets.

Calculation of net fixed assets:

$\begin{array}{c}\text{Net}\text{fixed}\text{assets}=\text{Fixed}\text{assets}-\text{Depreciation}\\ =\$520-120\\ =\$400\end{array}$

Hence, Net fixed asset is $400.

c)

Summary Introduction

To determine: Total assets.

Explanation of Solution

Note:

Total assets is calculated by adding the total current assets and net fixed assets.

Calculation of total assets:

$\begin{array}{c}\text{Total}\text{assets}=\text{Total}\text{current}\text{assets}+\text{Net}\text{fixed}\text{assets}\\ =\$100+\$400\\ =\$500\end{array}$

Hence, Total assets is $500

Total current assets are taken from part (a) and net fixed assets are taken from part (b) calculation.

d)

Summary Introduction

To determine: Current liabilities.

Explanation of Solution

Note:

Current liabilities is calculated by adding debt due for payment and payables.

Calculation of current liabilities:

$\begin{array}{c}\text{Current}\text{liabilities}=\text{Debt}\text{due}\text{for}\text{payment}+\text{Payables}\\ =\$25+\$35\\ =\$60\end{array}$

Hence, current liabilities is $60

e)

Summary Introduction

To determine: Total liabilities.

Explanation of Solution

Note:

Total liabilities is calculated by adding total current liabilities and long term debt.

Calculation of total liabilities:

$\begin{array}{c}\text{Total}\text{liabilities}=\text{Total}\text{current}\text{liabilities}+\text{Long}\text{term}\text{debt}\\ =\$60+\$350\\ =\$410\end{array}$

Hence, total liabilities is $410

f)

Summary Introduction

To determine: Total liabilities and shareholders equity.

Explanation of Solution

Note:

Total liabilities and shareholders’ equity is calculated by adding total liabilities and shareholders’ equity amount.

Calculation of total liabilities and shareholders’ equity:

$\begin{array}{c}\text{Total}\text{liabilities \&Shareholders' equity}=\text{Total}\text{liabilities}+\text{Shareholders}\text{}\text{Equity}\\ =\$410+\$90\\ =\$500\end{array}$

So, total liabilities & shareholders’ equity is $500.

g)

Summary Introduction

To determine: EBIT

Explanation of Solution

Note:

Earnings before interest and tax is computed by deducting COGS, selling and administration expenses and depreciation from Net sales.

Calculation of EBIT:

$\begin{array}{c}\text{EBIT}=\text{Net}\text{sales}-\text{COGS}-\text{selling}\text{\&}\text{admin}\text{expenses}-\text{depreciation}\\ =\$700-\$580-\$38-\$12\\ =\$70\end{array}$

Hence, EBIT is $70.

h)

Summary Introduction

To determine: Taxable income.

Explanation of Solution

Note:

Taxable income is calculated by deducting interest expenses from the EBIT.

Calculation of taxable income:

$\begin{array}{c}\text{Taxable}\text{income}=\text{EBIT}-\text{Interest}\text{expenses}\\ =\$70-\$25\\ =\$45\end{array}$

So taxable income is $45.

i)

Summary Introduction

To determine: Net income.

Explanation of Solution

Note:

Net income is calculated by deducting taxes from the total taxable income.

Calculation of taxable income:

$\begin{array}{c}\text{Net}\text{income}=\text{Taxable}\text{income}-\text{Taxes}\\ =\$45-\$15\\ =\$30\end{array}$

Hence, net income is $30.