Part A - Inventory and Depreciation
Consider this Balance Sheet situation:
Three years ago Mr. Jones bought a new machine that insertspimentos into
green olives. He paid $10,000 for the machine, and it wenthappily to work
and has been filling 5,000 green olives per day with bright redpimentos.
At the time of purchase, Mr. Jones� accountant told him that thestandard
useful life for this type of equipment was 10 years. Mr. Jonesdecided to use
the straight-line method to calculate depreciation.
Please answer the following questions:
1. What amount would go on the Balance Sheet at the time of
purchase?
2. Where would this amount have been posted on the Balance
Sheet?
3. What is the current book value of the equipment?
4. How much accumulated depreciation is posted?
Consider this Income Statement situation:
Mr. Jones started the year with no olives in inventory. Hebought 5,000
green olives at 25 cents each in March, 10,000 at 50 cents eachin July, and
10,000 at 75 cents each in November. At year end he had 2,000olives left
in inventory.
Calculate his ending inventory value using:
5. Average cost method
6. FIFO
7. LIFO
8. Which method should he use when he prepares his Income
Statement to show the bank?
Part B - Financial Statement Analysis
Please solve the following Financial Statement Ratios using
the Balance Sheet and Income Statement found below.
Also tell me, in a sentence or two, what we have learned
from each one.
1. CURRENT RATIO
2. QUICK, OR ACID TEST RATIO
3. WORKING CAPITAL
4. DEBT TO WORTH (or Owners Equity) RATIO
5. ROI (Return on Investment).
6. EARNINGS PER SHARE
7. INVENTORY TURNOVER
FIGURE A
Jim Jones, dba Jim�s Cool Stuff
BALANCE SHEET
As of December 31, 2009
ASSETS LIABILITIES
Current Assets Current Liabilities
Cash 250 Accounts Payable 500
Accts. Receivable 550 Notes Payable 600
Inventory 750 Contracts Payable 300
Prepaid Expenses 1,000 Total Curr. Liabilities 1,100
Total Curr. Assets 2,550
Long-Term Liabilities
Fixed Assets Mortgage 15,000
Land 40,000 Long Term Contract 1,500
Truck 2,000 Total LT Liabilities 16,500
Accum. Dep. (250) 1,750 TOTAL LIABILITIES 17,600
Total Fixed Assets 41,750
TOTAL ASSETS: 44,300 EQUITY
Common Stock
(1,000 shares)
26,700
TOTAL EQUITY 26,700
LIABILITIES & EQUITY 44,300
FIGURE B
Jim Jones, dba Jim�s Cool Stuff
INCOME STATEMENT
For the 12 months ending December 31, 2009
REVENUE $1,000,000
EXPENSES
Cost of Goods Sold:
Beginning Inventory 125,000
Plus Purchases 550,000
Less Ending Inventory (100,000)
= Cost of Goods Sold $575,000
Gross Profit $425,000
Operating Expenses
Rent 175,000
Payroll 217,700
Utilities 11,000
Office Expenses 500
Depreciation 50
Local Taxes 250
Legal Fees 500
Total Operating Expenses 405,000
NET INCOME BEFORE TAX 20,000
Federal Income Taxes (25%) 5,000
NET INCOME 15,000
Part A - Inventory and Depreciation
Consider this Balance Sheet situation:
Three years ago Mr. Jones bought a new machine that insertspimentos into
green olives. He paid $10,000 for the machine, and it wenthappily to work
and has been filling 5,000 green olives per day with bright redpimentos.
At the time of purchase, Mr. Jones� accountant told him that thestandard
useful life for this type of equipment was 10 years. Mr. Jonesdecided to use
the straight-line method to calculate depreciation.
Please answer the following questions:
1. What amount would go on the Balance Sheet at the time of
purchase?
2. Where would this amount have been posted on the Balance
Sheet?
3. What is the current book value of the equipment?
4. How much accumulated depreciation is posted?
Consider this Income Statement situation:
Mr. Jones started the year with no olives in inventory. Hebought 5,000
green olives at 25 cents each in March, 10,000 at 50 cents eachin July, and
10,000 at 75 cents each in November. At year end he had 2,000olives left
in inventory.
Calculate his ending inventory value using:
5. Average cost method
6. FIFO
7. LIFO
8. Which method should he use when he prepares his Income
Statement to show the bank?
Part B - Financial Statement Analysis
Please solve the following Financial Statement Ratios using
the Balance Sheet and Income Statement found below.
Also tell me, in a sentence or two, what we have learned
from each one.
1. CURRENT RATIO
2. QUICK, OR ACID TEST RATIO
3. WORKING CAPITAL
4. DEBT TO WORTH (or Owners Equity) RATIO
5. ROI (Return on Investment).
6. EARNINGS PER SHARE
7. INVENTORY TURNOVER
FIGURE A
Jim Jones, dba Jim�s Cool Stuff
BALANCE SHEET
As of December 31, 2009
ASSETS LIABILITIES
Current Assets Current Liabilities
Cash 250 Accounts Payable 500
Accts. Receivable 550 Notes Payable 600
Inventory 750 Contracts Payable 300
Prepaid Expenses 1,000 Total Curr. Liabilities 1,100
Total Curr. Assets 2,550
Long-Term Liabilities
Fixed Assets Mortgage 15,000
Land 40,000 Long Term Contract 1,500
Truck 2,000 Total LT Liabilities 16,500
Accum. Dep. (250) 1,750 TOTAL LIABILITIES 17,600
Total Fixed Assets 41,750
TOTAL ASSETS: 44,300 EQUITY
Common Stock
(1,000 shares)
26,700
TOTAL EQUITY 26,700
LIABILITIES & EQUITY 44,300
FIGURE B
Jim Jones, dba Jim�s Cool Stuff
INCOME STATEMENT
For the 12 months ending December 31, 2009
REVENUE $1,000,000
EXPENSES
Cost of Goods Sold:
Beginning Inventory 125,000
Plus Purchases 550,000
Less Ending Inventory (100,000)
= Cost of Goods Sold $575,000
Gross Profit $425,000
Operating Expenses
Rent 175,000
Payroll 217,700
Utilities 11,000
Office Expenses 500
Depreciation 50
Local Taxes 250
Legal Fees 500
Total Operating Expenses 405,000
NET INCOME BEFORE TAX 20,000
Federal Income Taxes (25%) 5,000
NET INCOME 15,000
