Ludwig Inc.'s adjusted trial balance is shown below. In addition, the following information is known:
No shares were issued in the years ended December 31, 2016 and 2017.
No dividends were declared or paid in the years ended December 31, 2016 and 2017.
The market value for the common shares at December 31, 2016 and 2017 were $15 and $16 respectively.
Ludwig Inc.
Adjusted Trial Balance
December 31,
2017 2016 2015
Cash 595,050 412,850 146,500
Account receivable 40,600 32,950 31,675
Allowance for doubtful accounts 10,000 3,750 5,575
Merchandise inventory 42,500 41,900 39,900
Prepaid expenses 3,000 2,600 2,900
Notes receivable, due in 2019 13,000 15,500 13,500
Property, plant and equipment assets 371,250 405,725 516,650
Accumulated depreciation 91,250 90,725 126,650
Accounts payable 36,700 36,700 35,300
Unearned sales 5,200 4,500 4,500
Notes payable, due in 2020 60,000 68,000 70,000
Preferred shares; $1.00 non-cumulative; 100,000 shares 290,000 290,000 290,000
Common shares; 50,000 shares issued and outstanding 170,000 170,000 170,000
Retained earnings 247,850 49,100 7,400
Sales 1,226,400 1,038,600 1,286,500
Cost of goods sold 849,400 604,100 1,099,600
Other operating expenses 167,700 201,800 124,800
Interest expense 8,900 8,750 7,600
Income tax expense 46,000 25,200 12,800
Ratio 2017 2016 Change Ind. Average Comparison
Current ratio 13.26
Acid-test ratio 16.15
Accounts receivable turnover 36.75
Merchandise turnover 21.34
Days' sales uncollected 7.78
Days' sales in inventory 19.41
Total asset turnover 1.44
Debt ratio 12.68
Equity ratio 87.32
Times interest earned 21.29
Profit margin 13.26
Gross margin 26.93
Return on total assets 14.44
Return on common shareholders' equity 26.07
Book value per common share 12.91
Book value per preferred share 2.42
Basic earnings per share 3.25
Price-earnings ratio 5.93
Accounts Payable Turnover 18.60
Required:
Industry averages for each ratio are shown in the table above. Use this information to complete the chart above by calculating the required ratios, determining if the change from the previous year is favourable or unfavourable, and then determining whether the each ratio (for 2017) is favourable or unfavourable compared to the industry average. If there is no change to 2 decimal places, select 'No change' if comparing from year to year, or 'The same as' if comparing to the industry average. All values should be accurate to at least two decimal places.
Ludwig Inc.'s adjusted trial balance is shown below. In addition, the following information is known:
No shares were issued in the years ended December 31, 2016 and 2017.
No dividends were declared or paid in the years ended December 31, 2016 and 2017.
The market value for the common shares at December 31, 2016 and 2017 were $15 and $16 respectively.
Ludwig Inc.
Adjusted Trial Balance
December 31,
2017 2016 2015
Cash 595,050 412,850 146,500
Account receivable 40,600 32,950 31,675
Allowance for doubtful accounts 10,000 3,750 5,575
Merchandise inventory 42,500 41,900 39,900
Prepaid expenses 3,000 2,600 2,900
Notes receivable, due in 2019 13,000 15,500 13,500
Property, plant and equipment assets 371,250 405,725 516,650
Accumulated depreciation 91,250 90,725 126,650
Accounts payable 36,700 36,700 35,300
Unearned sales 5,200 4,500 4,500
Notes payable, due in 2020 60,000 68,000 70,000
Preferred shares; $1.00 non-cumulative; 100,000 shares 290,000 290,000 290,000
Common shares; 50,000 shares issued and outstanding 170,000 170,000 170,000
Retained earnings 247,850 49,100 7,400
Sales 1,226,400 1,038,600 1,286,500
Cost of goods sold 849,400 604,100 1,099,600
Other operating expenses 167,700 201,800 124,800
Interest expense 8,900 8,750 7,600
Income tax expense 46,000 25,200 12,800
Ratio 2017 2016 Change Ind. Average Comparison
Current ratio 13.26
Acid-test ratio 16.15
Accounts receivable turnover 36.75
Merchandise turnover 21.34
Days' sales uncollected 7.78
Days' sales in inventory 19.41
Total asset turnover 1.44
Debt ratio 12.68
Equity ratio 87.32
Times interest earned 21.29
Profit margin 13.26
Gross margin 26.93
Return on total assets 14.44
Return on common shareholders' equity 26.07
Book value per common share 12.91
Book value per preferred share 2.42
Basic earnings per share 3.25
Price-earnings ratio 5.93
Accounts Payable Turnover 18.60
Required:
Industry averages for each ratio are shown in the table above. Use this information to complete the chart above by calculating the required ratios, determining if the change from the previous year is favourable or unfavourable, and then determining whether the each ratio (for 2017) is favourable or unfavourable compared to the industry average. If there is no change to 2 decimal places, select 'No change' if comparing from year to year, or 'The same as' if comparing to the industry average. All values should be accurate to at least two decimal places.
Related questions
FNEC 1600
Comprehensive Problem â Due Date: December 1, 2017
Fall 2017
Your score on the following problem will carry a weight of 13% in determining your overall course grade. A hard copy of your solution must be submitted by December 1st. Any submission after the beginning of class on that date is subject to a 10 point per day late point reduction.
Description:
You have been charged with preparing year-end adjusting entries along with a multiple-step income statement and a classified balance sheet for Fat Tire, Inc., a wholesaler of bicycles and bicycle parts. The financial statements will cover the year ended December 31, 2016. A December 31 bank reconciliation, an unadjusted trial balance, and other information to help with the adjusting entries follow.
| Fat Tire, Inc. | ||||||
| Bank Reconciliation | ||||||
| 31-Dec-16 | ||||||
| Balance per Bank Statement | $297,000 | |||||
| Deposits in Transit | $4,500 | |||||
| Bank Error (See note 1 below) | 1,200 | |||||
| Outstanding Checks | (2,000) | 3,700 | ||||
| Adjusted Balance | $300,700 | |||||
| Balance per Fat Tire's Books | $300,000 | |||||
| Interest Earned per bank statement | $450 | |||||
| Book Error (See note 2 below) | 1,170 | |||||
| NSF Check (See note 3 below) | (500) | |||||
| December bank service charges | (420) | 700 | ||||
| Adjusted Balance | $300,700 | |||||
| note 1: The bank incorrectly charged Fat Tire's account for a fee | ||||||
| that belonged to another client of the bank. | ||||||
| note 2: A check for $130 to pay a cash miscellaneous operating | ||||||
| expense was incorrectly recorded as $1,300 on Fat Tire's | ||||||
| note 3: The bank returned a bad check deposited by Fat Tire | ||||||
| that represented a receipt of payment from one of Fat Tire's | ||||||
| customers. | ||||||
| Fat Tire, Inc. | ||||||
| Unadjusted Trial Balance | ||||||
| December 31, 2016 | ||||||
| Debit | Credit | |||||
| Accounts Payable | 50,000 | |||||
| Accounts Receivable | 425,700 | |||||
| Accumulated Depreciation (Equip) | 4,305 | |||||
| Accumulated Depreciation (F & F) | 23,600 | |||||
| Advertising Expense | 18,000 | |||||
| Allowance for Doubtful Accounts | $1,500 | |||||
| Cash | $300,000 | |||||
| Common Stock | 180,000 | |||||
| Cost of Goods Sold | 2,613,000 | |||||
| Depreciation Expense | 6,455 | |||||
| Equipment | 10,000 | |||||
| Furniture & Fixtures | 50,000 | |||||
| Income Tax Expense | 228,323 | |||||
| Insurance Expense | 7,500 | |||||
| Interest Revenue | 5,200 | |||||
| Inventory | 325,000 | |||||
| Miscellaneous Operating Expense | 2,500 | |||||
| Note Payable | 35,000 | |||||
| Payroll Tax Expense | 23,680 | |||||
| Prepaid Insurance | 10,500 | |||||
| Rent Expense | 168,000 | |||||
| Rent Revenue | 4,000 | |||||
| Retained Earnings | 242,553 | |||||
| Salary Expense | 264,500 | |||||
| Sales Discounts | 42,000 | |||||
| Sales Returns | 30,000 | |||||
| Sales Revenue | 4,020,000 | |||||
| Supplies | 2,000 | |||||
| Supplies Expense | 17,000 | |||||
| Unearned Rent | 2,000 | |||||
| Utilities Expense | 24,000 | |||||
| Totals | 4,568,158 | 4,568,158 | ||||
Information related to adjusting entries:
No entries have been made for the December 31 bank reconciliation. Use the bank reconciliation provided to prepare the necessary entries.
Fat Tire pays employees and all payroll related liabilities semi-monthly. Each payment of payroll related liabilities is for the previous pay period. Thus, Fat Tire needs to accrue salaries and payroll related expenses for the December 16th-31st pay period. The following information was obtained for the last pay period of the year.
Gross Pay = $12,000
Federal Income Tax withholding rate = 20%
FICA rate for employees and employers = 8%
State unemployment taxes for the pay period = $250
Federal unemployment taxes for the pay period = $75
Fat Tire maintains a liability account for federal income tax withheld from employees and a separate liability account for its own corporate income taxes.
Based on a count taken on December 31st, the amount of supplies that remain on hand is $500.
Unbilled sales as of December 31 totaled $5,000. The cost of those bikes sold was $2,000.
The Allowance for Doubtful accounts is adjusted at the end of each year using the percentage of sales method. Fat Tires estimates that 1% of adjusted net sales will go uncollected.
The Prepaid Insurance balance represents an $18,000 one-year policy that began on July 1. The company adjusts any prepaid items on a monthly basis.
Fat Tire decided to sublease some of its rental space. On October 1, the company received $6,000 in advance from a neighboring business for 3 monthâs rent. The lease period began on October 1. Fat Tire adjusts rent related accounts on a monthly basis.
Furniture and Fixtures were acquired on January 2, 2012 at a cost of $50,000. Management selected a 10 year life and a $2,000 residual value. Fat Tire depreciates Furniture and Fixtures on a monthly basis using the straight-line method of depreciation.
The Equipment was purchased on January 2, 2015 at a cost of $10,000. Management selected a productive life of 6,000 hours and a $1,000 residual value. Fat Tire depreciates Equipment on a monthly basis using the units-of-production method. The equipment was used 200 hours in December.
The Note Payable was issued on December 1, 2016. The terms of the note state that the principal and interest is to be paid two years from the issuance date. The interest rate stated on the note is 6 percent.
Accrued advertising expenses incurred but not yet paid totaled $1,000 on December 31.
Fat Tire makes quarterly payments for its income taxes. No entry has been made for the fourth quarter income taxes of 2016 which will be paid in 2017. To make this entry, you will have to determine the Income Before Tax for the year. One-fourth of that amount represents income earned in the fourth quarter. Fat Tireâs corporate tax rate is 40%.
Required:
Prepared the adjusting journal entries required on December 31, 2016.
Prepared a multiple-step income statement for the year ended December 31, 2016. Make sure your operating expenses are listed in descending order. Use the Income statement example that I provided as supplemental notes to chapter 6 as a guide.
Prepare a classified balance sheet as of December 31, 2016. List your current assets in order of liquidity.
Note: If it helps, prepare a supplemental schedule like we completed in problem 4.6A. It may help organize your data prior to preparing the financial statements.
Appropriate Use of Office Hours:
Office hours are held so that students can ask questions about assignments and/or concepts. For assignments that are to be submitted for a grade, it is unreasonable for you to ask âis my assignment correctâ or âcan you find my mistakesâ. That is why the assignments are graded. A reasonable request is to ask âhow toâ questions if you are stuck on a step or âcan you help me understand this data or this requirementâ. We (Iâm speaking for the TAs as well) want to help, but we are not there to complete your assignments for you.
Print Formats: Be sure to use the print preview feature in Excel and adjust your spreadsheets so that they can be easily read. Points will be deducted if I have to work just to read your printouts. Use normal size fonts and make sure that when reading left to right, you do not have sheets starting on one page and finishing on another. In other words, pretend Iâm your client.
