The following information is available about the company:a. All sales during the year were on account.b. There was no change in the number of shares of common stock outstanding during the year.c. The interest expense on the income statement relates to the bonds payable; the amount ofbonds outstanding did not change during the year.d. Selected balances at the beginning of the current year were:$ 140,000$ 260,000$1,160,000Accounts receivableInventoryTotal assetse. Selected financial ratios computed from the statements below for the current year are:Earnings per shareDebt-to-equity ratioAccounts receivable turnover$ 2.640.85016.02.40Current ratio10%5.0Return on total assetsTimes interest earned ratioAcid-test ratio1.17Inventory turnover8.0 Required:Compute the missing amounts on the company's financial statements. (Hint: What's the differencebetween the acid-test ratio and the current ratio?) (Do not round intermediate calculations.)Pepper IndustriesIncome StatementFor the Year Ended March 31Sales$ 2,900,000Cost of goods soldGross marginSelling and administrative expensesNet operating incomeInterest expense44,000Net income before taxesIncome taxes (40%)Net incomePepper IndustriesBalance SheetMarch 31Current assets:CashAccounts receivable, netInventoryTotal current assetsPlant and equipment, netTotal assetsLiabilities:Current liabilities$240,000Bonds payable, 10%Total liabilitiesStockholders' equity:Common stock, $3.00 par valuRetained earningsTotal stockholders' equityTotal liabilities and stockholders equity

We can use the provided financial ratios and determine the missing figures in the income statement and balance sheet easily. We are given current ratio = 2.40 We know that current ratio = current assets/current liabilities Or 2.40 = current assets/240,000 Or current assets = 240,000*2.40 = 576,000 Acid test ratio = (current assets - inventory)/current liabilities Thus 1.17 = (576000 - inventory)/240000 Or inventory = 576000 - (240000*1.17) = 295,200 Inventory turnover = cogs/average inventory Thus 8.0 = COGS/(260000+295200)/2 Or 8 = COGS/277600 Or COGS = 277600*8 = 2,220,800. Thus we now have gross margin = sales - cogs = 2,900,000 - 2,220,800 = 679,200 Accounts receivable turnover = sales/average accounts receivables Thus 16.0 = 2,900,000/(140,000+closing accounts receivable)/2 Or (140,000+closing accounts receivable)/2 = 2,900,000/16 = 181250 Or closing accounts receivable = 181250*2 - 140000 = 222,500 Hence cash = total current assets - inventory - accounts receivable = 576000 - 295200 - 222500 = 58300 Now interest expenses of 44,000 = 10% of total bonds. Hence total bonds = 44000/10% = 440,000 Thus total liabilities = current liabilities + bond = 240,000+440,000 = 680,000 Debt equity ratio = total liabilities/total equity Hence 0.850 = 680,000/total equity Or total equity = 680,000/0.85 = 800,000. Thus total liabilities+equity = 680000+800000 = 1,480,000 We know that total assets = total liabilities+equity Hence total assets = 1,480,000 Now total current assets = 576,000 Hence plant & equipment = total assets - total current assets = 1480000 - 576000 = 904,000 Return on total assets = net income/average assets Hence 10% = net income/(1160000+1480000)/2 Or 10% = net income/1,320,000 Or net income = 10% of 1,320,000 = 132,000 Now we now that net income = (gross margin - selling/administrative - interest expenses) - 40% of (gross margin - selling/administrative - interest expenses) [Note that tax is 40%] Hence 132,000 = (679,200 - selling/administrative - 44000) - 40% of (679,200 - selling/administrative - 44000) Or 132,000 = (635200 - selling/administrative) - (254,080 - 0.4*selling/administrative) Or 132,000 = 381,120 - 0.60*selling/administrative Or 0.60*selling/administrative= 249,120 Or selling/administrative expenses = 249120/0.6 = 415,200 Hence our income statement is complete now. EPS = earnings per share = net income/no. of shares Thus 2.64 = 132,000/no. of shares Or no. of shares = 132,000/2.64 = 50,000 shares It is given that common stock has a par value of $3. Hence value of common stock = 50,000 shares * $3 per share = 150,000 Total equity = 800,000 (as earlier computed) Thus retained earnings = total equity - common stock = 800,000 - 150,000 = 650,000Thus the missing amounts can be seen below: Income statement Sales 2,900,000 Cost of goods sold 2,220,800 Gross margin 679,200 Selling & Administrative exp 415,200 Net operating income 264,000 Interest expenses 44,000 Net income before tax 220,000 Income tax (40%) 88,000 Net income 132,000 Balance Sheet Current Assets: Cash 58,300 Accounts receivable 222,500 Inventory 295,200 Total current assets 576,000 Plant & Equipment, net 904,000 Total assets 1,480,000 Liabilities: Current liabilities 240,000 Bonds payable 10% 440,000 Total liabilities 680,000 Stockholder's equity: Common stock, $3 par value 150,000 Retained earnings 650,000 Total stockholder's equity 800,000 Total liabilities+equity 1,480,000