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Problem 1: Preparing an Income Statement, a Statement of Retained Earnings, and a Balance Sheet At the end of its first year of operations (December 31, 2012), the Acme Company released the financial...

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Problem 1: Preparing an Income Statement, a Statement of Retained Earnings, and a Balance Sheet At the end of its first year of operations (December 31, 2012), the Acme Company released the financial data shown in Table 1 below:

Table 1: Acme Company Financial Data
Account Amount
Cash $25,000
Receivables from customers (no allowance for doubtful accounts is needed) $20,300
Inventory of merchandise $81,000
Equipment owned, at cost of $60,700 net of A/depreciation of $20,000 $40,700
Accounts payable owed to supplies $66,140
Salary payable for 2012 (to be paid on January 4, 2013) $1,800
Total sales revenue $126,000
Operating expenses, including the cost of the merchandise sold $80,200
Income taxes expense at 30% of pretax income; all paid during 2012 ?
Contributed capital 10,000 shares outstanding $87,000
Dividends declared and paid during 2012 $20,000
Using knowledge from prior courses, work experience, textbooks, or Internet sources, as well as the financial data provided in Table 1, prepare the following financial statements for the Acme Company:

Summarized income statement for the year 2012. Statement of retained earnings for the year 2012. Balance sheet at December 31, 2012. Liquidity ratios and an explanation of what those ratios tell us.

Problem 2: Using T-Accounts, Preparing the Balance Sheet, and Computing and Interpreting the Current Ratio Johnson Company has been operating for several years. At December 31, 2012, the accounting records reflected the following data, shown in Table 2 below:

Table 2: Johnson Company Financial Data
Account Amount
Cash $9,000
Investments (short-term) $4,000
Accounts receivable $13,000
Inventory $22,000
Notes receivable (long-term) $1,000
Equipment $48,000
Factory building $90,000
Intangibles $3,000
Accounts payable $15,000
Accrued liabilities payable $2,000
Notes payable (short-term) $7,000
Long-term notes payable $46,000
Contributed capital $90,000
Retained earnings $30,000
During the year 2013, Johnson Company had the following summarized activities:

a. Purchased short-term investments for $10,000 cash. b. Lent $8,000 to a supplier who signed a three-year note. c. Purchased equipment that cost $28,000; paid $4,000 cash and signed a one-year note for the balance. d. Hired a new president at the end of the year. The contract was for $110,000 per year plus options to purchase company stock at a set price based on company performance. e. Issued an additional 1,000 shares of capital stock for $12,000 cash. f. Borrowed $20,000 cash from a local bank, payable in three months. g. Purchased a patent (an intangible asset) for $4,000 cash. h. Built an addition to the factory for $45,000; paid $10,000 in cash and signed a three-year note for the balance. i. Returned defective equipment to the manufacturer, receiving a cash refund of $1,000. Using knowledge from prior courses, work experience, textbooks, or Internet sources, as well as the financial data provided above, complete the following:

Create T-accounts for each of the accounts on a balance sheet and enter the balances at the end of 2012 as beginning balances for 2013. Prepare a trial balance for 12/31/12. Record each of the events for 2013 in T-accounts and determine the ending balances. For each recording (posting), include the identifying letter (a through i). Prepare a trial balance for 12/31/12. Explain why you did or did not record item d, the hiring of the president, in a T-account. Prepare a balance sheet at December 31, 2013. Classify the balance sheet as appropriate (into current assets, fixed assets, and so on). Compute the current ratio for 2013. The current ratio measures the ability of the organization to pay their current obligations. Interpret this ratio as it applies to Johnson Company at December 31, 2013, as compared to December 31, 2012.
Answered Same Day Mar 22, 2020

Solution

Aarti J answered on Mar 23 2020
122 Votes
Problem 1
        Acme Company
        Income Statement
        For the year 2012
        Sales revenue    126000
        Operating expenses    80200
        Income before taxes    45800
        Income tax @ 30%    13740
        Net income    32060
        Acme Company
        Retained Earnings
        For the year 2012
        Beginning Retained earnings    0
        Add: Net income    32060
        Less: Dividends paid    20000
        Ending Retained earings    12060
        Acme Company
        Balance Sheet
        For the year 2012
        Assets
        Cu
ent assets:
        Cash    25000
        Accounts receivables    20300
        Inventory    81000
        Total cu
ent assets        126300
        Equipment    60700
        Accumulated depreciation    20000    40700
        Total Assets        167000
        Liabilities and equity
        Cu
ent liabilities
        Accounts payable    66140
        Salaries payable    1800
        Total cu
ent liabilities        67940
        Equity
        Common stock    87000
        Retained earnings    12060
        Total Equity        99060
        Total liabilities and equity        167000
        Liquidity ratio =    Cu
ent assets / Cu
ent liabilities
        =    126300 / 67940
        =    1.86
        The ratio tells that the company has around 1.86 times of cu
ent assets as compared to its cu
ent liabilities. This shows that the company is able to meet up its short term obligations effectively.
Probelm 2
        Cash                    Investment                    Accounts...
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