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

question 12

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
-Working capital equals current assets less current liabilities.

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Definitions:

Quota Rents

Revenue earned by the holder of import quotas, calculated by the difference between the domestic price and the world price of the imported goods.

Equalibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where the quantity supplied equals the quantity demanded.

Binding Price Ceiling

A government-imposed price limit that is set below the equilibrium price, causing a shortage of the product because demand exceeds supply.

Binding Price Floor

A government-imposed price control or limit that sets the lowest price at which a good can be sold, which is above the market equilibrium price, leading to excess supply.