Question

On January 1, 2018, the general ledger of Dynamite Fireworks includes the following account balances:   Accounts...

On January 1, 2018, the general ledger of Dynamite Fireworks includes the following account balances:

  Accounts Debit Credit
  Cash $ 25,700
  Accounts Receivable 7,100
  Supplies 5,000
  Land 69,000
  Accounts Payable 5,100
  Common Stock 84,000
  Retained Earnings 17,700
       Totals $ 106,800 $ 106,800

  

During January 2018, the following transactions occur:
  

January 2 Purchase rental space for one year in advance, $11,700 ($975/month).
January 9 Purchase additional supplies on account, $5,400.
January 13 Provide services to customers on account, $27,400.
January 17 Receive cash in advance from customers for services to be provided in the future, $5,600.
January 20 Pay cash for salaries, $13,400.
January 22 Receive cash on accounts receivable, $26,000.
January 29 Pay cash on accounts payable, $5,900.


The following information is available on January 31, 2018.

Rent for the month of January has expired.

Supplies remaining at the end of January total $4,700.

By the end of January, $4,625 of services has been provided to customers who paid in advance on January 17.

Unpaid salaries at the end of January are $4,470.

a) What is the amount of profit reported for the month of January?
The amount of profit reported for the month of January is ?
(b) Calculate the ratio of current assets to current liabilities at the end of January.
The ratio of current assets to current liabilities at the end of January is 5.00
(c) Based on Dynamite Fireworks’ profit and ratio of current assets to current liabilities, indicate whether Dynamite Fireworks appears to be in good or bad financial condition.
Does the company appears to be in good or bad financial condition? Good
Business   Accounting   
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Homework Answers

Answer #1

Solution a:

Amount of profit reported for the month of January = Service revenue - Rent Expense - Salaries Expense - Supplies expense

= ($27,400 + $4,625) - $975 - ($13,400 + $4,470) - ($5,000 + $5,400 - $4,700)

= $32,025 - $975 - $17,870 - $5,700

= $7,480

Solution b:

Current assets on 31.01.2018 = Cash + Accounts receivables + Supplies + Prepaid Rent

Current liabilities on 31.01.2018 = Accounts payable + Advance from customer + Salaries payable

Cash accounts balance = $25,700 - $11,700 +$5,600 - $13,400 + $26,000 - $5,900 = $26,300

Accounts receivable balance = $7,100 + $27,400 - $26,000 = $8,500

Supplies balance = $4,700

Prepaid rent balance = $11,700 - $975 = $10,725

Accounts payable balance = $5,100 + $5,400 - $5,900 = $4,600

Advance from customer = $5,600 - $4,625 = $975

Unpaid salaries = $4,470

Current Assets= $26,300 + $8,500 + $4,700 + $10,725 = $50,225

Current liabilities = $4,600 + $975 + $4,470 = $10,045

Current ratio = Current Assets / Current Liabilities = $50,225 / $10,045 = 5

Solution c:

Current ratio is better than industry and Company is also having profit, therefore company appears to be in good financial condition.

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