Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

At the end of last month, Paarl Manufacturing had S45,956 in the bank. It owed the bank $224,500 for their mortgage. It also had a

image text in transcribedimage text in transcribed

At the end of last month, Paarl Manufacturing had S45,956 in the bank. It owed the bank $224,500 for their mortgage. It also had a working capital loan of $28,000. Its customers owed $22.946 and it owed its suppliers $12,984. The company owned property worth $242,000. It had $125,000 in finished goods, 5104.000 in raw materials, and $40,500 in work in progress. Its production equipment was worth $440,000 when new (partially paid for by a large government loan due to be paid back in three years) but had accumulated a total of $246,000 in depreciation$35,500 worth last month. The company has investors who put up 598,000 for their ownership. It has been reasonably profitable; this month the gross income from sales was $221,000, and the costs associated with sales was only $41,500. Expenses were also relatively low; salaries were $44,000 last month, while the other expenses were depreciation, maintenance at S1460, advertising at $3550, and insurance at $310. In spite of $32,917 in accrued taxes (Paarl pays taxes at 40 percent), the company had retained earnings of $131,000 Construct a balance sheet (as of the end of this month) and income statement for this month) for Paarl Manufacturing. Should the company release some of its retained eamings through dividends at this time? First, construct balance sheet as of the end of this month. Start with the assets section of the balance sheet and then the liabilities and owners' equity sections. Balance Sheet Paarl Manufacturing As of the end of the month Assets Current assets Total Current Assets Long-term assets Total Long-Term Assets Total assets Liabilities and Owners' Equity Current Liabilities Total Current Liabilities Long-term Liabilities Total Long-Term Liabilities Total Liabilities Owners' Equity Total Owners' Equity Total Liabilities and Owners' Equity Now, construct an income statement for this month. (Use parentheses or a minus sign for a net loss.) Income Statement Paarl Manufacturing Revenues Net income from sales Expenses Total expenses Income before taxes Taxes Net income Now determine whether the company should release some of its retained earnings through dividends at this time by calculating the equity ratio. The equity ratio is . (Round to three decimal places as needed.) Should the company release some of its retained earnings through dividends at this time? O A. Since the equity ratio is low, the company has too much debt. The company should not issue dividends so it can reduce its debt. O B. Since the equity ratio is low, the company has a low amount of debt. The company should issue dividends to make its shareholders happy. O C. Since the equity ratio is high, the company has too much debt. The company should not issue dividends so it can reduce its debt. OD. Since the equity ratio is high, the company has a low amount of debt. The company should issue dividends to make its shareholders happy

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Principles

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

10th Edition

1119491630, 978-1119491637, 978-0470534793

More Books

Students also viewed these Accounting questions

Question

What are the requirements of ISO 45001:2016?

Answered: 1 week ago