Argo Sales Corporation has in recent years maintained the following relationships among the data on its financial statements:
Gross profit margin 40%
Net profit margin 10%
Rate of selling expenses to net sales 20%
Accounts receivable turnover 8 times per year
Inventory turnover 6 times per year
Quick-asset composition: 8% cash, 32% marketable securities, 60% accounts receivable
Acid-test ratio (Quick ratio) 2-to-1
Current ratio: 3-to-1
Asset turnover: 2 per year
Ratio of total assets to intangible assets 20-to-1
Ratio of accumulated depreciation to gross property, plant and equipment : 1-to-3
Ratio of accounts receivable to accounts payable: 1.5-to-1
Ratio of working capital to stockholders’ equity: 1-to-1.6
Debt/Equity ratio: 1-to-2
The corporation had a net income of $120,000 for 2004, which resulted in earnings of $5.20 per share of common stock. No common or preferred shares were sold or bought back during 2004. The corporation does not have minority share of earnings, equity income or non-recurring items. Additional information includes the following:
Capital stock authorized, issued (all in 1970), and outstanding:
Common, $10 per share per share, issued at 10% premium.
Preferred, 6% nonparticipating, $100 per share par value, issued at a 10% premium.
Market value per share of common at December 31, 2004: $78.
Preferred dividends paid in 2004: $3,000.
Times interest earned in 2004: 33.
The amounts of the following were the same at December 31, 2004, as at January 1, 2004: inventory, accounts receivable, 5% bonds payable – due 2013, total assets and total stockholders’ equity.
Assuming there is no income tax expense and specific depreciation expense, but still need the accumulated depreciation for balance sheet.
Administration expense, accrued expense payable and prepaid expenses are all backed in numbers.
All purchases and sales were on account. Assume the company uses direct write-off method to account for uncollectible accounts.
Required: Prepare in good form the balance sheet and income statement for the year ending December 31, 2004. Please show all calculations.
Please I need help in figuring out the operating income, interest expense, administrative expense on the income statement
Balance sheet: I got stuck on the gross receivables part and others. Please tell if what I have already done is correct and how to find the rest stuff.
income statement i came up with
Sales
$1,200,000
COGS
720,000
Gross Profit 480,000
Operating expenses
Selling expenses $240,000
Adminstrative expenses
EBIT
Interest expense
Net income $120,000
Balance sheet
Assets
Cash
48,000
Market Securities
192,000
Gross A/R
150,000
Allowance for doubtful accounts
Net A/R
360,000
Inventories
120,000
Prepaid expenses
Total current assets
Gross property, plant & equipment
Accumulated Depreciation
Net Fixed Assets
Total Assets
600,000
Liabilities
Accounts Payable
Accrued Expenses
Current portion of LTD
Total Current Liabilities
Bonds payable 5%
Total Liabilities
945,000
Owners Equity
Preferred Stock
Common Stock
135,000
Additional paid-in capital
225,000
Retained Earnings
1,413,000
Total Owners equity
117,000
Total liabilities and owners equity
1,890,000
To determine the operating income, interest expense, and administrative expense on the income statement, we will need to use the given information and some calculations:
1. Operating Income:
Operating Income = Gross Profit - Operating Expenses
Gross Profit = Sales - Cost of Goods Sold
Operating Expenses = Selling Expenses + Administrative Expenses
Given information:
Gross Profit Margin = 40%
Net Profit Margin = 10%
Rate of Selling Expenses to Net Sales = 20%
Sales = $1,200,000
COGS = $720,000
Calculations:
Gross Profit = Gross Profit Margin * Sales
Gross Profit = 0.4 * $1,200,000 = $480,000
Operating Expenses = Rate of Selling Expenses to Net Sales * Sales + Administrative Expenses
Operating Expenses = 0.2 * $1,200,000 + Administrative Expenses
To find Administrative Expenses, we need more information. Please provide the additional information regarding administrative expenses.
2. Interest Expense:
Given information:
Times Interest Earned = 33
Calculations:
Times Interest Earned = EBIT / Interest Expense
Interest Expense = EBIT / Times Interest Earned
To find EBIT (Earnings Before Interest and Taxes), we need to determine the operating income first.
3. Administrative Expense:
Please provide the additional information regarding administrative expenses so that we can calculate it accordingly.
Regarding the balance sheet, let's review the parts you have already done:
Balance Sheet:
Assets:
Cash: $48,000
Market Securities: $192,000
Gross A/R: ?
Allowance for doubtful accounts: ?
Net A/R: ?
Inventories: $120,000
Prepaid expenses: ?
To calculate the Gross A/R and Net A/R, we need the Accounts Receivable Turnover. Please provide that information.
Total Current Assets: ?
Gross Property, Plant & Equipment: ?
Accumulated Depreciation: ?
Net Fixed Assets: ?
Total Assets: $600,000
Liabilities:
Accounts Payable: ?
Accrued Expenses: ?
Current portion of LTD: ?
Total Current Liabilities: ?
Bonds payable 5%: ?
Total Liabilities: ?
Owners Equity:
Preferred Stock: ?
Common Stock: $135,000
Additional paid-in capital: $225,000
Retained Earnings: $1,413,000
Total Owners equity: $117,000
Total liabilities and owners equity: $1,890,000
Please provide the missing information so that we can calculate the rest of the balance sheet.