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

Exercise 62

Understanding and analyzing financial statement relationships—sales/  service organization Pope’s Garage 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.

Accounts receivable	$ 33,000
Depreciation expense	12,000
Land	27,000
Cost of goods sold	90,000
Retained earnings	59,000
Cash	9,000
Equipment	71,000
Supplies	6,000
Accounts payable	23,000
Service revenue	20,000
Interest expense	4,000
Common stock	10,000
Income tax expense	12,000
Accumulated depreciation	45,000
Long-term debt	40,000
Supplies expense	14,000
Merchandise inventory	31,000
Sales revenue	140,000

Required:

a. Calculate the total current assets at December 31, 2010.

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b. Calculate the total liabilities and owners’ equity 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 Pope’s Garage for 2010?

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f. If $16,000 of dividends had been declared and paid during the year, what was the January 1, 2010, balance of retained earnings?

Step 1 of 7

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.