ASSIGNMENT FOR WEEK NINE Part A - Inventory and Depreciation Consider this Balance Sheet situation: Three years ago Mr. Jones bought a new machine that inserts pimentos into green olives. He paid $10,000 for the machine, and it went happily to work and has been filling 5,000 green olives per day with bright red pimentos. At the time of purchase, Mr. Jones' accountant told him that the standard useful life for this type of equipment was 10 years. Mr. Jones decided to use the straight-line method to calculate depreciation. Please answer the following guestions: 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. He bought 5,000 green olives at 25 cents each in March, 10,000 at 50 cents each in July, and 10,000 at 75 cents each in November. At year end he had 2,000 olives 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 500 Accts. Receivable 250 550 Accounts Payable 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 15,00 Land 40,000 Long Term Contract 1,50 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 26,700 (1,000 shares) TOTAL EQUITY 26,700 LIABILITIES & EQUITY 44,300FIGURE 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 Ren 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
