Problem 2-14 The following information was obtained from the records of Shae, Inc.:

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The following information was obtained from the records of Shae, Inc.:


Merchandise inventory               264,000 

Notes payable (long term)         300,000 

Sales                                      900,000 

Buildings and equipment           504,000 

Selling, general, and administrative expenses     72,000 

Accounts receivable                       120,000 

Common stock (42,000 shares)       210,000 

Income tax expense                     84,000 

Cash                                        192,000 

Retained earnings, 1/1/10            129,000 

Accrued liabilities                          18,000 

Cost of goods sold                      540,000 

Accumulated depreciation           216,000 

Interest expense                          48,000 

Accounts payable                        90,000 

Dividends declared and paid during 2010   39,000 


Except as otherwise indicated, assume that all balance sheet items reflect account balances at December 31, 2010, and that all income statement items reflect activities that occurred during the year ended December 31, 2010. There were no changes in paid-in-capital during the year.




a.  Prepare an income statement and statement of changes in owners' equity for the year ended December 31, 2010, and a balance sheet at December 31, 2010, for Shae, Inc.  Based on the financial statements that you have prepared for part a, answer the questions in parts b-e below.  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)?



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