Warner Manufacturing Financial Statements
Module 2 Critical Thinking Assignment:
Understanding Financial Statements, Cash Flows and Taxes
Complete the problems in an Excel spreadsheet. Be sure to show your work to receive credit; no hard keys.
Problem 2-1: Preparing Financial Statements
Information below is for Warner Manufacturing, Inc. for the year ended December 31, 20×1 except where beginning of year numbers indicated. All amounts in SAR unless otherwise stated. Using the information below:
1. Prepare an income statement with the proper title 2. Prepare end of year balance sheet with the proper title 3. Calculate net working capital 4. Calculate the debt ratio Complete the problems in an Excel spreadsheet. Be sure to show your work to receive credit; no hard keys.
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| Problem 2-2 Preparing Statement of Cash Flows | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Given the following information, prepare a statement of cash flows.
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| Assume all amounts are in 000’s SAR. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warner Manufacturing Financial Statements Prepared
| Warner manufacturing, Inc. | ||
| Income Statement | ||
| For the Year Ending December 31, 20×1 | ||
| (SAR) | ||
| Revenue | ||
| Net Sales | 615,000 | |
| Cost of goods sold | (297,000) | |
| Gross Profit | 318,000 | |
| Expenses | ||
| Depreciation expense | 66,000 | |
| Marketing and general administrative expenses | 79,000 | |
| Interest expense | 4,750 | |
| Total Expenses | 149,750 | |
| Net Income Before Taxes | 168,250 | |
| Income tax expense | 67,300 | |
| Net Income | 100,950 | |
| Warner Manufacturing, Inc. | |
| Balance Sheet | |
| As At December 31, 20×1 | |
| SARS | |
| ASSETS | |
| Current Assets | |
| Cash | 220,000 |
| Inventories | 99,300 |
| Accounts receivable | 156,000 |
| Prepaid expenses | 14,500 |
| Total Current Assets | 489,800 |
| Fixed Assets | |
| Building and equipment | 895,000 |
| Less accumulated depreciation (Negative Value) | – 263,000 |
| Total Fixed Assets | 632,000 |
| TOTAL ASSETS | 1,121,800 |
| LIABILITIES AND OWNER’S EQUITY | |
| Current Liabilities | |
| Accounts payable | 102,000 |
| Notes Payable | 75,000 |
| Accrued expenses | 7,900 |
| Income taxes payable | 55,000 |
| Total Current Liabilities | 239,900 |
| Long-Term Liabilities | |
| Long-term debt | 330,000 |
| Total Long-Term Liabilities | 330,000 |
| Owner’s Equity | |
| Common stock | 289,000 |
| Retained Earnings | 262,900 |
| Total Owner’s Equity | 551,900 |
| TOTAL LIABILITIES AND OWNER’S EQUITY | 1,121,800 |
| FINANCIAL RATIOS | |
| Working Capital (Current Assets – Current Liabilities) | 249,900 |
| Debt Ratio (Total Liabilities /Total Assets) | 0.51 |
| Warner Manufacturing, Inc. | ||
| Cash Flow Statement | ||
| For the Year Ending | December 31, 20×1 | |
| (000’s SARS) | ||
| Cash at Beginning of Year | 20 | |
| Operations | ||
| Net Income | 95 | |
| Adjustment for Non cash Expenses: Depreciation | 12 | |
| Increase in acc receivable | (30) | |
| Increase in inventory | (30) | |
| Increase in account payable | 25 | |
| Interest expense | (30) | |
| Income taxes | (17) | |
| Net Cash Flow from Operations | 25 | |
| Investing Activities | ||
| Increase in fixed assets | (23) | |
| Net Cash Flow from Investing Activities | (23) | |
| Financing Activities | ||
| Increase in common stock | 20 | |
| Dividends | (15) | |
| Net Cash Flow from Financing Activities | 5 | |
| Net Increase in Cash | 7 | |
| Cash at End of Year | 27 | |