Classic Vinyl Limited is a record wholesaler selling new and used vinyl records to record stores and antique shops throughout Canada. The company's comparative financial statements for the fiscal year ending December 31 appear below. The company did not issue any new common or preferred shares during the year. A total of 760,000 common shares were outstanding. The interest rate on the bond payable was 5%, the income tax rate was 30%, and the dividend per common share was $2.05. The market value of the company's common shares at the end of the year was $154. All of the company's sales are on account:
CLASSIC VINYL LIMITED
Comparative Income Statement and Reconciliation of Retained Earnings (dollars in thousands)
This Year Last Year
Assets This Year Last Year
Current assets
Sales 214,000 222,000
Cash 2,480 2,740
Accounts receivable 19,600 19,000
Inventory 135,400 134,000
Prepaid expenses 32,000 25,120
Gross margin 1,360 1,160
Total current assets 78,600 88,000
Selling and administrative expenses:
Selling expenses 55,440 48,020
Land 36,900 35,400
Buildings and equipment, net 24,400 89,600
Total property and equipment 24,400 23,800
Administrative expenses 92,000
Total selling and administrative expenses 114,000 116,400
Total assets 60,700 58,000
Operating income 169,440 164,420
Interest expense 17,900 30,000
Current liabilities
Accounts payable 1,120 1,120
Accrued payables 45,000 49,696
Net income before taxes 1,960 2,360
Notes payable, short term 5,034 8,664
Income taxes 46,960 52,896
Net income 11,746 20,216
Bonds payable 22,400 22,000
Dividends to preferred shareholders 180 1,120
Total liabilities 69,360 75,296
Net income remaining for common shareholders 11,566 19,096
Shareholders' equity
Dividends to common shareholders 610 1,558
Preferred shares 2,000 15,200
Common shares 2,000
Net income added to retained earnings 10,956 17,538
Total paid-in capital 17,200 82,880
Retained earnings, beginning of year 17,200 71,924
Retained earnings 71,924 54,386
Total shareholders' equity 100,080 89,124
Retained earnings, end of year 82,880 71,924
Shareholders' equity 169,440 164,420
