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

Exercise 70

Prepare an income statement, balance sheet, and statement of changes in owners’ equity; analyze results The following information was obtained from the records of Breanna, Inc

Accounts receivable	$ 10,000
Accumulated depreciation	52,000
Cost of goods sold	128,000
Income tax expense	8,000
Cash	65,000
Sales	200,000
Equipment	120,000
Selling, general, and administrative expenses	34,000
Common stock (9,000 shares)	90,000
Accounts payable	15,000
Retained earnings, 1/1/10	23,000
Interest expense	6,000
Merchandise inventory	37,000
Long-term debt	. . . 40,000
Dividends declared and paid during 2010	12,000

Except as otherwise indicated, 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 ended December 31, 2010. There were no changes in paid-in capital during the year.

Required:

a. Prepare an income statement and statement of changes in owners’ equity for the year ended December 31, 2010, and a balance sheet at December 31, 2010, 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.

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b. What is the company’s average income tax rate?

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c. What interest rate is charged on long-term debt?

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d. What is the par value per share of common stock?

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e. What is the company’s dividend policy (i.e., what proportion of the company’s earnings are used for dividends)?

Step 1 of 12

Preparation financial statement-analyze results:

Financial statement : It is a report that provides the financial information of a company or firm.