Prepare an income statement and statement of changes in stockholders’ equity

Subject: Business    / Accounting

The info on the following page was obtained from the records of Breana, Inc.

Accounts receivable = $40,000

Accumulated depreciation = 208,000

Costs of goods sold = 512,000

Income tax expense = 32,000

Cash = 260,000

Sales = 800,000

Equipment = 480,000

Selling, general, and administrative expenses = 136,000

Common stock (36,000 shares) = 360,000

Accounts payable = 60,000

Retained earnings 1/1/16 = 92,000

Interest expense = 24,000

Merchandise inventory = 148,000

Long term debt = 160,000

Dividends declared and paid during 2016 = 48,000

Except as otherwise indicated, assume that all balance sheet items reflect account balances at December 31, 2016, and that all income statement items reflect activities that occurred during the year ended December 31, 2016. There were no changes in paid-in capital during the year.


a. Prepare an income statement and statement of changes in stockholders’ equity for the year ended December 31, 2016 and a balance sheet at December 31, 2016 for Breana, Inc.

Based on the financial statements that you have prepared for part a, answers 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 are used for dividends)?