Prepare an income statement, balance sheet, and statement of changes in stockholders equity; analyze results. The following information was obtained from the records of Shae, Inc.:
Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . $132,000
Notes payable (long term) . . . . . . . . . . . . . . . . . . . . . . . 150,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000
Buildings and equipment . . . . . . . . . . . . . . . . . . . . . . . 252,000
Selling, general, and administrative expenses . . . . . . . . 36,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Common stock (21,000 shares) . . . . . . . . . . . . . . . . . . 105,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,000
Retained earnings,13 . . . . . . . . . . . . . . . . . . . . . . . 64,500
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,000
Accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . 108,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
Dividends declared and paid during 2013 . . . . . . . . . . . 19,500
Except as otherwise indicated, 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 ended December 31, 2013. There were no changes in paid in capital during the year.
Required:
a. Prepare an income statement and statement of changes in stockholders' equity for the year ended December 31, 2013, and a balance sheet at December 31, 2013, for Shae, Inc. Based on the financial statements that you have prepared for part a, answer the questions in parts b-e. Provide brief explanations for each of your answers and state any assumptions you believe are necessary to ensure that your answers are correct.
b. What is the company's average income tax rate?
c. What interest rate is charged on long term debt?
d. What is the par value per share of common stock?
e. What is the company's dividend policy (i.e., what proportion of the company's earnings is used for dividends)?