Reference: 13-02
Financial Statements for Larned Company Appear Below:
Larned

question 2

True/False

Reference: 13-02
Financial statements for Larned Company appear below:
Larned Company
Balance Sheet
December 31, 20X6 and 20X5 (dollars in thousands)
$$\begin{array} { | l | l | l | } \hline & 20 X 6 & 20 \times 5 \\\hline \text { Current assets: } & & \\\hline \text { Cash and marketable securities } & \$ 130 & \$ 100 \\\hline \text { Accounts receivable, net } & 150 & 130 \\\hline \text { Inventory } & 100 & 100 \\\hline \text { Prepaid expenses } & 20 & 20 \\\hline \text { Total current assets } & 400 & 350 \\\hline \text { Noncurrent assets: } & & \\\hline \text { Plant \& equipment, net } & 1,640 & 1,600 \\\hline\end{array}$$ $\begin{array}{|c|l|l|}\hline \text { Plant \& equipment, net } & {1,640}&{1,600} \\\hline \text { Total assets } & \$ 2,040 & \$ 1,950 \\\hline & & \\\hline \text { Current liabilities: } & & \\\hline \text { Accounts payable } & \$ 120 & \$ 120 \\\hline \text { Accrued liabilities } & 110 & 80 \\\hline \text { Notes payable, short term } & {170} & 160 \\\hline \text { Total current liabilities } & 400 & 360 \\\hline \text { Noncurrent liabilities: } & & \\\hline \text { Bonds payable } & 370 & 400 \\\hline \text { Total liabilities } & 770 & 760 \\\hline \text { Shareholders' equity: } & & \\\hline \text { Preferred shares, \$20 par, 10\% } & 120 & 120 \\\hline \text { Common shares, \$10 par } & 180 & 180 \\\hline \text { Additional paid-in capital--common shares } & 110 & 110 \\\hline \text { Retained earnings } & 860 & 780 \\\hline \text { Total shareholders' equity } & 1,270 & 1,190 \\\hline \text { Total liabilities \& shareholders' equity } & \$ 2,040 & \$ 1,950 \\\hline\end{array}$ Larned Company
Income Statement
For the Year Ended December 31, 20X6 (dollars in thousands) $$\begin{array} { | l | r | } \hline \text { Sales (all on account) } & \$ 2,930 \\\hline \text { Cost of goods sold } & 2,050 \\\hline \text { Gross margin } & 880 \\\hline \text { Operating expenses } & 350 \\\hline \text { Net operating income } & 530 \\\hline \text { Interest expense } & 40 \\\hline \text { Net income before taxes } & 490 \\\hline \text { Income taxes (30\%) } & 147 \\\hline \text { Net income } & \$ 343 \\\hline\end{array}$$ Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160.
Included in operating expenses was depreciation expense of $20,000.
7
-In calculating earnings per share, net income is reduced by the amount paid out as dividends to the owners of the preferred shares.

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Definitions:

Agency Relationship

represents a legal arrangement where one party, the agent, acts on behalf of another party, the principal, in dealing with third parties.

Express Authority

Explicitly given power or authority to an agent or representative by a principal to perform specific acts or functions on their behalf.

Apparent Authority

A doctrine in contract law that allows a third party to hold a principal liable for the acts of an agent, if the principal's actions lead the third party to reasonably believe that the agent is authorized.

Settlement Approval

The process by which a court reviews and approves a settlement agreement between parties in a lawsuit.