Answered: ARG Inc, is a manufacturer of dairy…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements.
ARG Inc. has an overdraft limit of $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows:

a) What is is the interest for the year 2017

b) what is the interest for the year 2018

c) what is the interest for the year 2019

ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who,
as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital
was provided by each sister. However, the company has managed to return a profit in each year of
operation as shown in the financial statements.
ARG Inc. has an overdraft limit of $3.2 million and pays interest on its overdraft at a rate of 6 percent
(6%) per year. The company currently has no long-term debt. Current liabilities consist of trade
creditors and overdraft finance in each of the three years as follows:
Year
Overdraft (S'000)
Trade creditors (S'000)
Interest
2017
2018
2019
50
567
1167
1,133
400
733
The industry averages for firms similar to ARG Inc. are
Profit 9%
Creditor days
70 days
Net
Margin
Interest cover
Stock days
Debtor days
15 times
85 days
75 days
Current ratio
Quick ratio
DEBT/Equity ratio
21 times
0.8 times
40% (using Book value)

ARG INC
Income Statement for the years ending December 31
2019
2018
2017
(S'o00)
(S'000)
(S'00)
Revenue
5,200
3400
2600
Cost of Goods sold
4570
2806
2104
Profit before interest & tax
630
594
496
Interest
70
34
3
Earnings before tax
560
560
493
Тах
140
140
123
Net Income
420
420
370
Dividends
20
20
20
Retained profit
400
400
350
ARG Inc
Balance Sheet as at December 31
2019
2018
2017
(S'000)
(S'000)
(S'000)
Fixed Assets
1.600
1.200
800
Current Assets
Inventory
Accounts Receivable
1,450
1,000
600
1400
850
400
2,850
1,850
1,000
Total Assets
4,450
3,050
1,800
Current Liabilities
2,300
1,300
450
Ordinary shares
1,000
1,000
1,000
Reserves
1.150
750
350
Total Liabilities & Owners Equity
4,450
3,050
1,800

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