Question

Innovative Product Incorporated needs to prepare financial statements based on the information given below for the year end 31^st December 2019. The information obtain are as follows:-

Interest revenue 50,000

Depreciation 5,000

Administrative expenses 6000

Sales 50,000

Interest expenses 1,000

Selling expenses 9,000

Cost of good sold 25,000

Tax 35%

Equipment 60,000

Inventory 20,000

Vehicles 40,000

Land and building 180,000

Cash and cash equivalent 200,000

Income tax payable 70,000

Account payable 64,000

Retained earnings 100,000

Account Receivable 34,000

Common stock 100,000

Long term debt 200,000

Question.

1. Prepare the financial statements necessary based on the information given.
2. Analyze the Innovative Product Incorporated financial strength by quantifying the financial ratios.
3. Forecast the changes in the financial strength that might take place if the following changes takes place in the macroeconomic fundamentals.

• Expected inflation rate to increase 3%
• Current GDP is -4.5 %
• Unemployment rate 3%
• Interest rate 4%
• Exchange rate has depreciated 5%
• Government is giving out subsidy and also increasing tax rates to finance its expenditure.

Answer 1

profit and loss account

Sales 50,000

Other operating income :

Interest revenue 50,000

Total income 1,00,000

Less : Expenses :

Cost of goods sold (25000)

selling expenses (9000)

Adminstrative exp (6000)

interest exp (1000)

Depreciation (5000)

Net profi before tax 54000

Less : current tax@35% (18900)

Net profit after tax 35100

Balancesheet of Innovative Product Incorporated for the year ended 31stDecember 2019

Liabilities Assets

retain earnings 1,00,000   Equipment 60,000

Long term debt 2,00,000 Vehicle 40,000

Accounts payable 64000 Land&building 1,80,000

Income tax payable 70,000 Less : depreciation (5000)

Current year income tax 18900 Inventory 20,000

common stock 1,00,000

Accounts receivable 34,000

cash & cash equivalent 2,00,0000