Question 3 Part A and B

A.

Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.

Current liabilities	$	185		Income before interest and taxes	$	129
10% Bonds, long-term		390		Interest expense		39
Total liabilities		575		Income before tax		90
Shareholders' equity				Income tax		29
Capital stock		210		Net income	$	61
Retained earnings		282
Total shareholders' equity		492
Total liabilities and equity	$	1,067

HHF's times interest earned ratio is (Round your answer to two decimal places.):

Multiple Choice

• 2.31.

• 1.56.

• 3.31.

• 10.00.

B. As controller for Henderson, you are attempting to reconstruct and revise the following balance sheet prepared by a staff accountant.

Henderson Manufacturing Company Balance Sheet At December 31, 2018 ($ in 000s)
Assets
Current assets:
Cash			$	1,250
Accounts receivable				3,750
Allowance for uncollectible accounts				(600	)
Finished goods inventory				7,000
Prepaid expenses				3,400
Total current assets				14,800
Long-term assets:
Investments				3,000
Raw materials and work in process inventory				3,900
Equipment				19,500
Accumulated depreciationequipment				(9,000	)
Franchise				?
Total assets			$	?
Liabilities and Shareholders Equity
Current liabilities:
Accounts payable			$	7,200
Note payable				8,000
Interest payablenote				400
Deferred revenue				2,400
Total current liabilities				18,000
Long-term liabilities:
Bonds payable				7,000
Interest payablebonds				200
Shareholders equity:
Common stock	$	?
Retained earnings		?		?
Total liabilities and shareholders equity				?

Additional information ($ in 000s):

1. Certain records that included the account balances for the franchise and shareholders equity items were lost. However, a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.5. That is, total liabilities are 150% of total shareholders equity. Retained earnings at the beginning of the year was $3,200. Net income for 2018 was $2,300, and $1,000 in cash dividends were declared and paid to shareholders.
2. The investments represent treasury bills purchased in December 2018 that mature in January 2019. These are considered cash equivalents.
3. Interest on both the note and the bonds is payable annually.
4. The note payable is due in annual installments of $800 each.
5. Deferred revenue will be recognized equally over the next 18 months.
6. The common stock represents 500,000 shares of no par stock authorized, 300,000 shares issued and outstanding.

Required: Prepare a complete, corrected, classified balance sheet. (Do not round your intermediate calculations. Enter your answers in the order of their liquidity. Amounts to be deducted should be indicated by a minus sign. Enter your answers in thousands of dollars.)