Emily and her parents, Doug and Bev, are anxious to complete and analyze the updated June 30, 2017, financial statements. The following information represents additional adjustment data and information to enable the preparation of ABC's year-end financial statements.

1. The physical count of inventory indicates $18,000 on hand at June 30. ABC uses a perpetual inventory system.

2. Of the bank loan payable, $7,500 is to be paid in the next year; the remainder is non-current.

3. Of the mortgage payable, $5,000 is to be paid in the next year; the remainder is non-current.

Emily has obtained a copy of the financial statements of a major competitor, a public company, and has been able to determine several of their ratios: the current ratio is 2.5:1, the gross profit margin is 75%, and the profit margin is 8%.

Instructions

(a) Record and post any required adjusting entry for item 1 above to T accounts updated in CT4-6 in Chapter 4.

(b) Prepare a revised adjusted trial balance, if required, at June 30.

(c) Prepare a multiple-step income statement, statement of changes in equity, and statement of financial position for the year. (Note: Although ABC could prepare a statement of retained earnings, we have requested a statement of changes in equity. You will learn how to prepare a statement of retained earnings in detail in a later chapter.)

(d) Calculate the current ratio, gross profit margin, and profit margin for the year.

1. Are ABC's ratios better or worse than those of its major competitor?

2. Why do you expect there is a difference between ABC's ratios and those of its major competitor?