Question

Pepper Company provided the incomplete financial statements shown below as well as the following additional information:

1. All sales during the year were on account.
2. There was no change in the number of shares of common stock outstanding during the year.
3. The interest expense on the income statement relates to the bonds payable; the amount of bonds outstanding did not change during the year.
4. Selected balances at the beginning of the current year were:

Accounts receivable	$	330,000
Inventory	$	440,000
Total assets	$	1,850,000

e. Selected financial ratios computed from the statements below for the current year are:

Earnings per share	$	3.72
Debt-to-equity ratio		0.870
Accounts receivable turnover		16.0
Current ratio		2.00
Return on total assets		10	%
Times interest earned ratio		5.5
Acid-test ratio		1.18
Inventory turnover		9.0

Required:

Compute the missing amounts on the company's financial statements. (Hint: What’s the difference between the acid-test ratio and the current ratio?) (Do not round intermediate calculations.)

Pepper Industries
Income Statement
For the Year Ended March 31
Sales	$4,700,000
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating income
Interest expense	62,000
Net income before taxes
Income taxes (30%)
Net income

Pepper IndustriesBalance SheetMarch 31Current assets:Cash$37,500Accounts receivable, net257,500Inventory205,000Total current assets500,000Plant and equipment, netTotal assetsLiabilities:Current liabilities$250,000Bonds payable, 10%620,000Total liabilities870,000Stockholders’ equity:Common stock, $2.70 par valueRetained earningsTotal stockholders’ equity1,000,000Total liabilities and stockholders' equity$1870000

Answer 1

Average Inventory = ($440000+205000)/2 = $322500

Sales	$     47,00,000
Cost of Goods Sold	$     29,02,500
Gross Margin	$     17,97,500
Selling and administrative expenses	$     14,56,500
Net Operating Income	$       3,41,000
Interest Expense	$          62,000
Net Income before taxes	$       2,79,000
Income Taxes	$          83,700
Net Income	$       1,95,300