Exercise 7-21 Complete the accounting cycle using long-term asset transactions (L07-4,7.7) [The following information applies to the questions displayed below! On January 1, 2021, the general ledger of TNT Fireworks includes the following account balances Accounts Debit Credit Cash $ 58,700 Accounts Receivable 25,000 Allowance for Uncollectible Accounts $ 2,200 Inventory 36,300 Notes Receivable (5%, due in 2 years) 12,080 Land 155,000 Accounts Payable 14,800 Common Stock 220,000 Retained Earnings 50,880 Totals $287,000 $287,000 During January 2021, the following transactions occur. January 1 Purchase equipment for $19,588. The company estimates a residual value of $1,500 and a five-year service life. January 4 Pay cash on accounts payable, $9,500. January 8 Purchase additional inventory on account, $82,900. January 15 Receive cash on accounts receivable, $22,000. January 19 Pay cash for salaries, $29,800. January 28 Pay cash for January utilities, $16,588. January 30 Firework sales for January total $220,000. All of these sales are on account. The cost of the units sold is $115,000. Information for adjusting entries a. Depreciation on the equipment for the month of January is calculated using the straight-line method b. The company estimates future uncollectible accounts. The company determines $3,000 of accounts receivable on January 31 are past due, and 50% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger) c Accrued interest revenue on notes receivable for January d. Unpad salaries at the end of January are $32,600 e. Accrued income taxes at the end of January are $9,000 Exercise 7-21 Part 1 1. Record each of the transactions listed above, if no entry is required for a particular transaction event, select "No Journal Entry Required in the first account field.) View transaction list Journal entry worksheet 1 2 3 4 5 6 7 Purchase equipment for $19,500. The company estimates a residual value of $1,500 and a five-year service life. Note: Enter debits before credits Date General Journal January 01 Equipment Debit Credit 119.500 Exercise 7-21 Part 4 4. Prepare a multiple-step income statement for the period ended January 31, 2021. TNT FIREWORKS Multiple-Step Income Statement For the month ended January 31, 2021 $ 0 0 Expenses Total Operating Expenses 0 0 0 $ 0 Exercise 7-21 Part 5 5. Prepare a classified balance sheet as of January 31, 2021. (Deductible amounts should be indicated with a minus sign.) TNT FIREWORKS Balance Sheet January 31, 2021 Assets Llabilities 0 Total Current Assets Total Current Liabilities Stockholder's Equity 0 Total Assets Total Stockholders' Equity Total Liabilities and Stockholders' 0 Equity Exercise 7-21 Part 6 6. Record closing entries. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet Record the closing entry for revenues. Note: Enter debits before credits. Date General Journal January 31 2021 Debit Credit Record entry View general journal Clear entry Exercise 7-21 Part 7 7. Analyze how well TNT Fireworks manages its assets: Requirement : 1. Calculate the return on assets ratio for the month of January Return on Assets Ratio Choose Numerator Choose Denominator = Return on Assets Ratio Return on assets 2. If the average return on assets for the industry in January is 2%, is the company more or less profitable than other companies in the same industry? More profitable Less profitable Requirement 2: b-1. Calculate the profit margin for the month of January. If the industry average profit marginis 4% Choose Numerator Profit Margin - Choose Denominator Profit Margin Profit Margin b-2.1 the industry wverage profit margin is 4%, is the company more or less efficient at converting sales to pront than other companies in the same industry? More efficient es efficient Requirement 3: 0-1. Calculate the asset turnover ratio for the month of January. If the industry average asset turnover is 0.5 times per month Choose Numerator Asset Turnover Ratio Choose Denominator = Asset Turnover Ratio Asset Turnover times c.2. If the industry average asset turnover is 0.5 times per month, is the company more or less efficient at producing revenues with its assets than other companies in the same industry? More efficient Less efficient