MGT 4540 Chapter exercise on Balance and Income Statement Put your name here: Instructions: The work must be on your own. The exercise consists of 13 questions: Q1-10 (worth 8 points each) and Q 11(worth 10 points each), 12, 13 (worth 5 points each) You must show calculation, not just an answer 100 Maximum points possible 1. With Bob's help, Richard has purchase, installed and setup his new accounting software program. In fact, he has just printed his first income statement and balance sheet, reproduced below. Warrior Industries Income Statement for year ending 12/31/20XX 456,428 205,200 251,228 Sales revenue Less cost of goods sold Gross margin Less operating expenses || Marketing Sales and administrative Depreciation Total operating expenses Operating income Less interest expense Income before taxes Income tax expense Net income 40,000 20,000 10,000 70,000 181,228 7,000 174,228 40,000 134,228 Warrior Industries Balance Sheet for 12/31/20XX |Assets Current Assets Cash $ 52,400.00 Accounts receivable $ 11,000.00 Inventory $ 15,900.00 Total current assets $ 79,300.00 Fixed assets Property, plant and equipment S 80,000.00 Accumulated depreciation S (20,000.00) Net fixed assets $ 60,000.00 Total assets $139,300.00 Liabilities and Owner's Equity Current liabilities Accounts payable Note payable to bank Deposits from customers Total current liabilities Long term mortgage Total liabilities Owner's Equity Retained earnings Total Owners' Equity Total liability and equities $ 5,300.00 $ 2,700.00 $ 6,000.00 $ 14,000.00 $ 40,000.00 $ 54,000.00 $ 85,300.00 $ 85,300.00 $139,300.00 To see if he really understands what's going on, Bob asked Richard the following questions. Richard answered most of them correctly, can you? 1. How much revenue did the business produce? The business produced $456,428. 2. What costs did the business have for financing? The cost that the businesses had for financing were 3. What can you turn into cash in one year? 4. What did it cost to make your product? 5. What is the value of everything the company owns? 6. How much profit did the company make? 7. How much is the business worth to Richard? 8. How much does the business need for its continuing operation? Hint: Net Fixed Assets is the purchase price of all fixed assets (Land, buildings, equipment, machinery, vehicles, leasehold improvements) less accumulated Depreciation 9. What debts will take longer than a year to pay? 10. Can this business be considered liquid? Hint: Current ratio = current assets/ current liabilities / By the rule of thumb, it should be 2 or greater. The current ratio is an indicator of a business' ability to repay debt when it is due