Question

complete a Trial Balance, Income Statement, Statement of Retained Earnings, Balance Sheet, and calculate all of the ratios.

Accounts Receivable	16,250
Accumulated depreciation: Office equipment	25,000
Cash	25,300
Land	58,500
Merchandise inventory	25,250
Office equipment	41,000
Office supplies	4,410
Prepaid rent	1,800
Cost of Goods Sold	112,575
Depreciation expense: office equipment	2,750
Income tax expense	9,000
Insurance expense	1,900
Office supplies expense	520
Rent expense	5,700
Salaries expense	98,095
Utilities expense	5,650
Accounts Payable	35,600
Bonds Payable (due Dec 31, 2021	25,750
Deferred income taxes	5,750
Note payable (due Dec 31, 2010)	4,750
Premium on bonds payable	8,900
Sales taxes payable	5,850
Additional paid-in capital (common stock)	7,000
Common Stock (1,800 shares, $10 par value)	18,000
Dividends declared	5,000
Preferred stock (250 shares, $20 par value)	5,000
Retained earnings (Jan 2018)	24,650
Treasury stock (200 common shares at cost)	2,250
Sales	253,000
Sales returns and allowances	3,300
Beginning Inventory	32,000
Beginning Accounts Receivable	22,000
Use this data to create a Trial Balance.
Then Create a multiple-step income statement, statement of retained
earnings, and a classified balance sheet.
Provide the following ratios
Current ratio
Acid test ratio
Accounts receivable turnover
Inventory
Days' sales uncollected
Days' Sales in inventory
Debt-to-equity ratio
Profit Margin

Answer 1

Firstly we create Trial Balance from above Information:-

Trial Balance

For the Year Ended December 31,2018

Accounts Title	Debit	Credit
Accounts Receivable	$16,250
Accumulated Depreciation: Office Equipment		$25,000
Cash	25,300
Land	58,500
Merchandise Inventory	25,250
Office Equipment	41,000
Office Supplies	4,410
Prepaid Rent	1,800
Cost of goods sold	112,575
Depreciation Expenses: Office Equipment	2,750
Income tax Expense	9,000
Insurance Expenses	1,900
Office Supplies Expenses	520
Rent Expenses	5,700
Salaries Expenses	98,095
Utilities Expenses	5,650
Accounts Payable		35,600
Bonds Payable ( due Dec. 31,2021)		25,750
Deferred Income taxes		5,750
Note Payable (due Dec. 31,2010)		4,750
Premium on Bonds Payable		8,900
Sales Taxes Payable		5,850
Additional paid-in Capital (Common Stock)		7,000
Common Stock (1,800 shares, $10 par value)		18,000
Dividends Declared	5,000
Preferred Stock (250 Shares, $20 par value)		5,000
Retained Earnings (January,2018)		24,650
Treasury Stock ( 200 common shares at cost)	2,250
Sales		253,000
Sales Returns and Allowances	3,300
Totals	$419,250	$419,250

Income Statement

For the Year Ended December 31,2018

Accounts Title	Amount	Amount
Sales	$253,000
Less:- Sales Returns and Allowances	(3,300)
Net Sales		$249,700
Less:- Cost of Goods Sold		(112,575)
Gross Profit		$137,125
Less:- Expenses:-
Depreciation Expenses: Office Equipment	2,750
Insurance Expenses	1,900
Office Supplies Expenses	520
Rent Expenses	5,700
Salaries Expenses	98,095
Utilities Expenses	5,650
Total Expenses		($114,615)
Income Before Taxes		$22,510
Less:- Income tax Expense		(9,000)
Net Income		$13,510

Statement of Retained Earnings

For the Year Ended December 31,2018

Accounts Title	Amount
Retained Earnings (January,2018)	$24,650
Less:- Dividends Declared	(5,000)
Add:- Net Income	13,510
Retained Earnings (December,2018)	$33,160

Note:- Retained Earnings reduced at the time the Dividends Declared, not at the time the Dividends paid. Because Dividends are paid out of Net Income. So we deduct Dividends Declared from Retained Earnings.

Balance Sheet

As on December 31,2018

Accounts Title	Amount	Amount
Assets:-
Current Assets:-
Accounts Receivable	$16,250
Cash	25,300
Merchandise Inventory	25,250
Office Supplies	4,410
Prepaid Rent	1,800
Total Current Assets		$73,010
Fixed Assets:-
Land	58,500
Office Equipment	41,000
Less:- Accumulated Depreciation: Office Equipment	(25,000)
Total Fixed Assets		$74,500
Total Assets		$147,510
Liabilities and Stockholders Equity:-
Liabilities:-
Current Liabilities:-
Accounts Payable	35,600
Deferred Income taxes	5,750
Premium on Bonds Payable	8,900
Sales taxes Payable	5,850
Total Current Liabilities		$56,100
Long-term Liabilities:-
Bonds Payable (due Dec. 31,2021)	25,750
Note Payable	4,750
Total Long-term Liabilities		$30,500
Stockholders Equity:-
Additional paid-in Capital (Common Stock)	7,000
Common Stock (1,800 shares,$10 par value)	18,000
Preferred Stock (250shares,$20 par value)	5,000
Less:- Treasury Stock (200 common shares at cost)	(2,250)
Retained Earnings (December ,2018)	33,160
Total Stockholders Equity		$60,910
Total Liabilities and Stockholders Equity		$147,510

1. Calculations for Current Ratio:-

Current Ratio calculated by dividing Current Assets by Current Liabilities.

Current Ratio=(Current Assets/Current Liabilities)

=($73,010/$56,100)

=1.30 to 1

2. Calculations for Acid Test Ratio:-

Acid Test Ratio calculated by dividing Quick Assets by Current Liabilities.

Quick Assets=(Cash+Accounts Receivable+Office Supplies)

=$(25,300+16,250+4,410)

=$45,960

Acid Test Ratio=(Quick Assets/Current Liabilities)

=$(45,960/56,100)

=0.82 to 1

3. Calculations for Accounts Receivable Turnover:-

Accounts Receivable Turnover Ratio calculated by dividing Net Sales by Average Accounts Receivable.

Average Accounts Receivable=(Beginning Accounts Receivable+Ending Accounts Receivable)/2

=(22,000+16,250)/2=38,250/2

=$19,125

Accounts Receivable Turnover= (Sales- Sales Returns and Allowances/Average Accounts Receivable)

=(253,000-3,300)/19,125

=249,700/19,125

=13.06 times

4. Calculations for Inventory Turnover:-

Inventory Turnover Ratio calculated by dividing Cost of Goods Sold by Average Inventory.

Average Inventory=(Beginning Inventory+Ending Inventory)/2

=$(32,000+25,250)/2

=$57,250/2

=$28,625

Inventory Turnover Ratio =(Cost of Goods Sold/ Average Inventory)

=($112,575/28,625)

=3.93 times

5. Calculations for Days Sales Uncollected:-

Days Sales Uncollected calculated by dividing Days In Year by Accounts Receivables Turnover.

Days Sales Uncollected=(365 days/Accounts Receivable Turnover)

=(365/13.06)

=27.9 Days or 28 Days

6. Calculations for Days In Inventory:-

Days In Inventory calculated by dividing days In Year by Inventory Turnover.

Days In Inventory=(365Days/Inventory Turnover)

=(365days/3.93)

=92.8 Days or 93 Days

7. Calculations for Debt to Equity Ratio:-

Debt to Equity Ratio calculated by dividing Total Liabilities by Total Stockholders Equity.

Debt to Equity Ratio=(Total Liabilities/Total Stockholders Equity)

Total Liabilities=(Current Liabilities+Long-term Liabilities)

=$(56,100+30,500)

=$86,600

Debt to Equity Ratio=(Total Liabilities/ Total Stockholders Equity)

=(86,600/60,910)

=1.42 to 1

8. Calculations for Profit Margin:-

Profit Margin is calculated by dividing Net Income by Net Sales.

Profit Margin=(Net Income/Net Sales)×100

=(13,510/249,700)×100

=5.41%