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Homework answers / question archive / Pope's Garage had the following accounts and amounts in its financial statements on December 31, 2013

Pope's Garage had the following accounts and amounts in its financial statements on December 31, 2013

Accounting

Pope's Garage had the following accounts and amounts in its financial statements on December 31, 2013. Assume that all balance sheet items reflect account balances at December 31, 2013, and that all income statement items reflect activities that occurred during the year then ended.

Accounts receivable $31,200
Depreciation expense 10,300
Land 25,900
Cost of goods sold 89,500
Retained earnings 64,200
Cash 11,600
Equipment 68,000
Supplies 5,800
Accounts payable 20,300
Service revenue 23,600
Interest expense 1,200
Common stock 8,000
Income tax expense 18,720
Accumulated depredation 42,000
Long-term debt 36,000
Supplies expense 13,600
Merchandise inventory 28,000
Sales revenue 169,000

Required:

a. Calculate the total current assets at December 31, 2013.

b. What was the average income tax rate for Pope's Garage for 2013?

c. If $19,000 of dividends had been declared and paid during the year, what was the January 1, 2013, balance of retained earnings?

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a. Total current assets at December 31, 2013 are as follows:

Accounts receivable 31,200
Cash 11,600
Supplies 5,800
Merchandise inventory 28,000
Total current assets 76,600

b. Average income tax rate for Pope's Garage for 2013 is computed as follows:

 

Income tax expense 18,720
Divide by Net Income:  
Service revenue 23,600
Sales revenue 169,000
Less: Cost of goods sold 89,500
Gross margin 103,100
Less: Expenses  
Depreciation expense 10,300
Interest expense 1,200
Supplies expense 13,600
Total Expense 25,100
   
Net Income 78,000
   
Average income tax rate 24%

c. Beginning retained earnings can be computed using the basic accounting equation of Assets = Liabilities + Equity

 

Total current assets 76,600
Noncurrent assets:  
Land 25,900
Equipment 68,000
Less: Accumulated depredation 42,000
Total noncurrent assets 51,900
   
Total Assets 128,500
Less: Liabilities + Common stock  
Accounts payable 20,300
Long-term debt 36,000
Common stock 8,000
Total Liabilities and Common stock 64,300
   
Retained earnings, Dec. 31 64,200
Less: Net Income after tax (78,000 - 18,720) 59,280
Add: Dividends 19,000
Retained earnings, Jan. 1 23,920

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