Question & Answer: Description…..

Balances	Selected Balances
Acct No.	Description	12/31/2015	12/31/2014
1100	Cash	84,500	73,050
1120	Accounts Receivable	247,450	253,975
1150	Merchandise Inventory	550,000	383,475
1160	Prepaid Insurance	4,800	2,400
1170	Store Supplies	4,000	750
1230	Store Equipment	569,500
1240	Accumulated Depreciation—Store Equipment	70,700	56,700
2100	Accounts Payable	209,000	198,525
2110	Salaries Payable	47,750	42,625
	Long Term Notes	300,000	300,000
3100	Common Stock (10,000 shares issued, $25 Par)	250,000	250,000
3110	Capital in Excess of Par Value	100,000	100,000
3120	Dividends Paid	100,000
3200	Retained Earnings	335,300	335,300
4100	Sales	5,032,350	4,225,135
4110	Sales Returns and Allowances	113,700	15,955
4120	Sales Discounts	61,600	35,455
5100	Cost of Merchandise Sold	3,012,150	2,300,422
5200	Sales Salaries Expense	727,800
5210	Advertising Expense	292,000
5220	Depreciation Expense	14,000
5230	Store Supplies Expense	9,800
5290	Miscellaneous Selling Expense	12,600
5300	Office Salaries Expense	417,700
5310	Rent Expense	88,700
5320	Insurance Expense	12,000
5390	Miscellaneous Administrative Expense	7,800
5650	Interest Expense	15,000

	Total Assets at 12/31/2014		1,125,138

1) liabilities to stockholders’ equity

2) net sales to assets

3) rate earned on total assets

4) rated earned on stockholders’ equity

5) rate earned on common stockholders’ equity

6) earnings per share on common stock

Expert Answer

Formula sheet

A	B	C	D	E	F	G	H	I	J
2
3
4		Acct No.	Description	42369	42004
5		1100	Cash	84500	73050
6		1120	Accounts Receivable	247450	253975
7		1150	Merchandise Inventory	550000	383475
8		1160	Prepaid Insurance	4800	2400
9		1170	Store Supplies	4000	750
10		1230	Store Equipment	569500
11		1240	Accumulated Depreciation—Store Equipment	-70700	-56700
12			Total Assets	=SUM(E5:E11)	=F38
13		2100	Accounts Payable	209000	198525
14		2110	Salaries Payable	47750	42625
15			Long Term Notes	300000	300000
16			Total Liabilities	=SUM(E13:E15)	=SUM(F13:F15)
17		3100	Common Stock (10,000 shares issued, $25 Par)	250000	250000
18		3110	Capital in Excess of Par Value	100000	100000
19		3120	Dividends Paid	100000
20		3200	Retained Earnings	335300	335300
21			Total Shareholder’s Equity	=SUM(E17:E18)+E20	=SUM(F17:F20)
22			Liabilities and shareholder’s equity	=E16+E21	=F16+F21
23		4100	Sales	5032350	4225135
24		4110	Sales Returns and Allowances	113700	15955
25		4120	Sales Discounts	61600	35455
26		5100	Cost of Merchandise Sold	3012150	2300422
27		5200	Sales Salaries Expense	727800
28		5210	Advertising Expense	292000
29		5220	Depreciation Expense	14000
30		5230	Store Supplies Expense	9800
31		5290	Miscellaneous Selling Expense	12600
32		5300	Office Salaries Expense	417700
33		5310	Rent Expense	88700
34		5320	Insurance Expense	12000
35		5390	Miscellaneous Administrative Expense	7800
36		5650	Interest Expense	15000
37			Net Income	=E23-SUM(E24:E36)
38			Total Assets at 12/31/2014		1125138
39
40
41		1)
42
43		Liabilities to shareholder’s equity	=Average Liabilities / Average Shareholder’s Equity
44
45
46		Average Liabilities	=(Total Liabilities at the Beginning of 2015 + Total Liabilities at the end of 2015)/2
47			=(E16+F16)/2
48
49		Average Shareholder’s Equity	=(Equity at the Beginning of 2015 + Equity at the end of 2015)/2
50			=(F21+E21)/2
51
52		Liabilities to shareholder’s equity	=Average Liabilities / Average Equity
53			=D47/D50
54
55		Hence Liaiblities to shareholder’s Equity	=D53
56
57		2)
58		Net Sales	=Sale – Sales Return and allowances – Sales Discounts
59			=E23-E24-E25
60
61		Assets	=Average of Assets in 2015
62			=(Assets at the Beginning of 2015 + Assets at the end of 2015)/2
63			=(F12+E12)/2
64
65		Net Sales /Assets	=D59/D63
66
67		3)
68
69		Net Income	=E37
70		Assets	=D61
71			=D63
72
73		Rate earned on total assets	=D69/D71
74
75
76		4)
77
78		Rate earned on sharefholder’s Equity	=Net Income /Average Shareholder’s Equity
79			=E37/D50
80
81		Hence Return on shareholder’s Equity	=D79
82
83		5)
84		Rate earned on common shareholder’s Equity	=(Income available to common Shareholders) /Average Shareholder’s Equity
85
86		Income available to common Shareholders	=Increase in Retained Earnings + Dividends Paid	(Assuming dividends Paid are dividends to common Shareholders)
87			=(E20-F20)+E19
88
89		Average Shareholder’s Equity	=D50
90
91		Rate earned on common shareholder’s Equity	=(Income available to common Shareholders) /Average Shareholder’s Equity
92			=D87/D89
93
94		Hence Rate earned on common shareholder’s Equity	=D92
95
96
97		6)
98
99		Basic EPS can be calculated using following formula:
100
101		Basic EPS	=( Income available to common Shareholders)/Weighted average of common shares during the period
102
103
104		Income available to common Shareholders	=D87
105		Weighted average of common shares during the period	=10000
106
107		Basic EPS	=( Income available to common Shareholders)/Weighted average of common shares during the period
108			=D104/D105
109
110		Hence Basic EPS is	=D108
111

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