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Problem 1: Preparing an Income...
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...
1 answer below »
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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