6.14 Salvador Industries bought land and built its plant 20 years ago. The depreciation on the building is calculated using the straight-line method, with a life of 30 years and a salvage value of $50 000. Land is not depreciated. The depreciation for the equipment, all of which was purchased at the same time the plant was constructed, is calculated using declining- balance at 20 percent. Salvador currently has two outstanding loans: one for $50 000 due December 31, 2013, and another one for which the next payment is due in four years. Salvador Industries Balance Sheet as of June 30, 2013 Cash Accounts receivable Inventories Prepaid services Total Current Assets Long-Term Assets Building Assets $ 350 000 2820 000 2003 000 160 000 Less accumulated depreciation Equipment Less accumulated depreciation Land Total Long-Term Assets Total Assets Current Liabilities Accounts payable $200 000 $480 000 540 000 Liabilities and Owners' Equity $ 921534 29000 Accrued taxes Total C CHAPTER 6 Depreciation and Financial Accounting 197 Long-Term Liabilities Mortgage Total Total Long-Term Liabilities Owners' Equity Capital stock Total Owners' Equity Total Liabilities and Owners' Equity $1 200 000 318 000 $1 920 000 During April 2013, there was a flood in the building because a nearby river over- flowed its banks after unusually heavy rain. Pumping out the water and cleaning up the basement and the first floor of the building took a week. Manufacturing was suspended during this period and some inventory was damaged. Because of lack of adequate insur- ance, this unusual and unexpected event cost the company $100 000 net. (a) Fill in the blanks and complete a copy of the balance sheet and income statement here, using any of the above information you feel is necessary. Income Salvador Industries Income Statement for the Year Ended June 30, 2013 Gross income from sales Less Total income Depreciation Interest paid Other expenses Total expenses Income before taxes Taxes at 40% $8 635 000 7.490 000 Net income 70 000 240 000 100 000 (b) Show how information from financial ratios can indicate whether Salvador Industries can manage an unusual and unexpected event such as the flood without threatening its existence as a viable business.