The following information was obtained from the records of Shae, Inc.: Merchandise inventory . . . .

Question:

The following information was obtained from the records of Shae, Inc.:

Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . $264,000

Notes payable (long-term) . . . . . . . . . . . . . . . . . . . . . . 300,000

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000

Buildings and equipment. . . . . . . . . . . . . . . . . . . . . . . . 504,000

Selling, general, and administrative expenses . . . . . . . 72,000

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000

Common stock (42,000 shares) . . . . . . . . . . . . . . . . . . 210,000

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,000

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,000

Retained earnings, 1∕1∕10 . . . . . . . . . . . . . . . . . . . . . . . 129,000

Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540,000

Accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . 216,000

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000

Dividends declared and paid during 2010 . . . . . . . . . . 39,000

Except as otherwise indicated, assume that all balance sheet items reflect account balances at December 31, 2010, and that all income statement items reflect activities that occurred during the year ended December 31, 2010. There were no changes in paid-in capital during the year.

Required:

a. Prepare an income statement and statement of changes in owners’ equity for the year ended December 31, 2010, and a balance sheet at December 31, 2010, 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)?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...