ACCT1501 Lecture Notes - Lecture 2: Balance Sheet, Financial Statement, Equity Method
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1. Produce a balance sheet for a company that distinguishesbetween current and non-current assets and liabilities.
2. Create a balance sheet from a trial balance.
3. Create a comparison of net income based on different methods ofinventory accounting.
4. Analyze a statement of cash flows and show where each line itemcan be found or calculated from the other financialstatements.
5. Prepare a full analysis of key financial ratios for a companyand state conclusions about the financial strength of the companycompared to industry ratios.
Create a BalanceSheet from the trial balance: | ||||
Debits | Credits | Classification | ||
Cash | 300,000.00 | Current asset | ||
Sales | (10,000,000.00) | Income statement | ||
Cost of Goods Sold | 7,000,000.00 | Income statement | ||
Selling Expenses | 500,000.00 | Income statement | ||
Other income | (50,000.00) | Income statement | ||
Administrative expenses | 350,000.00 | Income statement | ||
Interest Expenses | 12,500.00 | Income statement | ||
Land | 300,000.00 | non-current asset | ||
Building | 2,000,000.00 | non-current asset | ||
Long Term bond payable | (550,000.00) | non-current liability | ||
Accrued Liabilities | (50,000.00) | current- liability | ||
Accumulated Depreciation Buildings | (250,000.00) | non-current asset | ||
Equipment | 750,000.00 | non-current asset | ||
Receivables | 100,000.00 | current asset | ||
Allowance for doubtful accounts | (7,500.00) | current asset | ||
Accumulated depreciation equipment | (125,000.00) | non-current asset | ||
Common Stock | (200,000.00) | equity | ||
Payables | (115,000.00) | current Liability | ||
Inventories | 200,000.00 | current asset | ||
Prepaid Expenses | 50,000.00 | current asset | ||
Retained Earnings | (215,000.00) | equity | ||
11,562,500.00 | (11,562,500.00) |
Assets | Equity and Liabilities | |||||||||
Current Assets | Current Liabilities | |||||||||
Total Current Assets | - | Total Current Liabilities | - | |||||||
Total long term Liabilities | - | |||||||||
Total property plant and equipment | - | |||||||||
Total Equity | - | |||||||||
Total Assets | - | Total Equity and liabilities | - | |||||||
Happy Hamburger Company
Below are the balance sheet and income statement for HappyHamburger Company.
Happy Hamburger Company | |||
Balance Sheet as of December 31, 20XX | |||
Assets | Liabilities and Shareholder Equity | ||
Cash | 78,000 | Accounts payable | 136,000 |
Accounts Receivable | 336,500 | Current portion of debt | 82,500 |
Inventories | 225,000 | Other current liabilities | 114,000 |
Total current assets | 639,500 | Total current liabilities | 332,500 |
Net fixed assets | 310,000 | Long-term debt | 252,000 |
Total assets | 949,500 | Total Liabilities | 584,500 |
Common equity | 365,000 | ||
Total Liabilities & Equity | 949,500 |
Happy Hamburger Company | |
Income Statement for the year ending December 31,20XX | |
Sales | 1,704,560 |
Cost of goods sold | 1,489,000 |
Selling, general and administrative expenses | 152,000 |
Earnings before interest and taxes (EBIT) | 63,560 |
Interest expense | 26,200 |
Earnings before taxes (EBT) | 37,360 |
Federal and state income taxes (40%) | 14,944 |
Net Income | 22,416 |
Required:
Calculate the following ratios for the company.
Explain whether the company is doing better or worse than theindustry average for each ratio.
Note: Formula must be provided foreach ratio
Happy | Industry | |
Current ratio |
| 1.7 |
Days sales outstanding (based on 365 day year) |
| 36 days |
Inventory turnover |
| 7.3 |
Fixed asset turnover |
| 12.1 |
Total asset turnover |
| 3.00 |
Return on sales |
| 3.20% |
Return on assets |
| 3.60% |
Return on equity |
| 9.00% |
Debt ratio |
| 71% |
In addition to presenting the computed answers, please also discuss how you arrived at each answers the accounting problem asks. The accounting problem presents a companyâs balance sheet and income statement. The Diamond Gem Cleaning and Maintenance Service Company is in the business of contracting its cleaning and maintenance services to office buildings. The balance sheet and income statement have blank lines. Determine the values that would be appropriate for each blank line. Provide a narrative of how you arrived at each value. In doing so, explain the account being valued and its relationship to the other financial data. For example, if the accounts payable line was missing, explain that you can derive its value based on knowing all the other values of the current liabilities section. Then explain what an account liability is, as well as why it would belong in the current liabilities section of the balance sheet
Please refer to the income statement and balance sheet of the Diamond Gem Cleaning and Maintenance Service Company available down:
Superior papers will mention and explain the following elements when responding to the assignment question:
Provide correct balances for the blank financial account lines.
Provide a narrative about how the values were determined.
Provide a definition and explanation of each account line that was completed
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