The following ratios and other data are taken from the financial statements of Dene Company for the year ended December 31, 2016.
|
Current ratio |
1.8 to 1 |
|
Acid-test ratio |
1.3 to 1 |
|
Net working capital |
$40,000 |
|
Number of days of sales in inventory |
73 days |
|
Gross profit as a percentage of sales |
50% |
|
Earnings per share |
$0.25 |
|
Accounts receivable collection period |
73 days |
|
Common shares outstanding |
50,000 shares |
|
Current liabilities to shareholders’ equity |
31.25% |
|
Issued value of each common share |
$2.25 |
|
Income tax rate |
20% |
Assume beginning balance sheet amounts equal ending balance sheet amounts when calculating averages.
Required:
- Using the information given, prepare the balance sheet. Assume only accounts indicated by the ratios above appear on the balance sheet, other than retained earnings. Show all calculations.
- Prepare an income statement listing sales, cost of goods sold, gross profit, operating expenses, income before income taxes, income taxes, and net income. Show all calculations.
- (Appendix) Restate the financial statements to facilitate Scott formula analysis. Assume 50% of current liabilities are borrowings and the rest relate to operations. Assume interest expense (before taxes) is $1,000 and is included in operating expenses. Calculate the Scott formula.
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