Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 66

Understanding and analyzing financial statement relationships — merchandising organization Gary’s TV had the following accounts and amounts in its financial statements on December 31, 2010. Assume that all balance sheet items reflect account balances at December 31, 2010, and that all income statement items reflect activities that occurred during the year then ended.

Interest expense	$ 36,000
Paid-in capital	80,000
Accumulated depreciation	24,000
Notes payable (long-term)	280,000
Rent expense	72,000
Merchandise inventory	840,000
Accounts receivable	192,000
Depreciation expense	12,000
Land	128,000
Retained earnings	900,000
Cash	144,000
Cost of goods sold	1,760,000
Equipment	72,000
Income tax expense	240,000
Accounts payable	92,000
Sales revenue	2,480,000

Required:

a. Calculate the difference between current assets and current liabilities for Gary’s TV at December 31, 2010.

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b. Calculate the total assets at December 31, 2010.

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c. Calculate the earnings from operations (operating income) for the year ended December 31, 2010.

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d. Calculate the net income (or loss) for the year ended December 31, 2010.

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e. What was the average income tax rate for Gary’s TV for 2010?

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f. If $256,000 of dividends had been declared and paid during the year, what was the January 1, 2010, balance of retained earnings?

Step 1 of 8

Understanding and analyzing the financial statement relationship-related variables

Financial statement : It is a report providing the financial information of relative to a particular part of a firm’s operations or status.

Financial statement analysis : It is an evaluative tool to determining the earlier period, current and expected performance of a particular firm.