Problem - The accounting records of Nettle Distribution show the following assets and liabilities as of December 31, 2015 and 2016.
|
December 31
|
2015
|
2016
|
|
Cash
|
$64,300
|
$15,640
|
|
Accounts receivable
|
26,240
|
19,390
|
|
Office supplies
|
3,160
|
1,960
|
|
Office equipment
|
44,000
|
44,000
|
|
Trucks
|
148,000
|
157,000
|
|
Building
|
0
|
80,000
|
|
Land
|
0
|
60,000
|
|
Accounts payable
|
3,500
|
33,500
|
|
Note payable
|
0
|
40,000
|
During 2016, Mr. Nettle, the owner, invested $35,000 additional cash in the business (in exchange for more common stock). Late in December 2016, the business purchased a small building and land valued at $140,000. This purchase required $100,000 cash plus a $40,000 note payable. Also, the business pays $3,000 cash per month for dividends.
By comparing equity amounts from the balance sheets and using the additional information presented in this problem, compute the net income earned by the business in 2016.
|
Equity, December 31, 2015
|
$282,200
|
|
Add: Net income
|
11,145
|
|
|
|
|
|
293,345
|
|
|
|
|
Less: Dividends
|
|
|
Equity, December 31, 2016
|
$293,345
|
Compute the 2016 year-end debt ratio for the business.