Two Companies Have the Following Balance Sheets as of December

question 111

Essay

Two companies have the following balance sheets as of December 31,2012:
$\begin{array}{l}\begin{array}{lll}\underline{ \text { Reef Company}}\\ \text { Cash}\\ \text { Other Assets}\\\\ \text { Total Assets}\\\\\underline{ \text { Score Company}}\\ \text { Cash}\\ \text { Other Assets}\\\\ \text { Total Assets}\\\end{array}\begin{array}{lll}\\\$ 25,000\\\underline{75,000} \\\\ \underline{\underline{\$ 100,000}} \\\\\\\$ 25,000 \\\underline{75,000} \\\\\underline{\underline{ \$ 100,000 }}\\\end{array}\begin{array}{lll}\\ \text { 10 \% Note Payable, }&{50,000 }\\ \text { Stockholders' Equity }&\underline{ 50,000}\\ \text { Total Liabilities And }&\underline{ }\\ \text { Stockholders' Equity}&\underline{ \$ 100,000 }\\\\\\\\\\\\ \text { Stockholders' Equity}&\underline{ \$ 100,000 }\\\end{array}\end{array}$

In 2012,each company had sales of $225,000 and expenses (excluding interest)of $200,000.Ignore income taxes.Assume Reef's 10% Note Payable is outstanding the entire year.
Required:
a.Calculate net income for both Reef and Score.
b.Calculate operating income for both Reef and Score.

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Definitions:

Medium Of Exchange

An intermediary instrument or system used to facilitate the sale, purchase, or trade of goods and services between parties.

Reserve Ratio

The portion of depositors' balances that banks must have on hand as cash, a regulatory requirement meant to ensure bank stability and liquidity.

Total Deposits

The sum of all money that is deposited in a bank's accounts by its customers.

Commercial Banks

Depository institutions that historically made short-term loans primarily to businesses.