Question
Exercise 7-21B Complete the accounting cycle using long-term asset transactions (LO7-4, 7-7) [The following information applies to the questions displayed below.] On January 1, Year
Exercise 7-21B Complete the accounting cycle using long-term asset transactions (LO7-4, 7-7)
[The following information applies to the questions displayed below.] On January 1, Year 1, the general ledger of a company includes the following account balances:
Accounts | Debit | Credit | |||||
Cash | $ | 59,800 | |||||
Accounts Receivable | 27,200 | ||||||
Allowance for Uncollectible Accounts | $ | 3,300 | |||||
Inventory | 37,400 | ||||||
Notes Receivable (5%, due in 2 years) | 25,200 | ||||||
Land | 166,000 | ||||||
Accounts Payable | 15,900 | ||||||
Common Stock | 231,000 | ||||||
Retained Earnings | 65,400 | ||||||
Totals | $ | 315,600 | $ | 315,600 | |||
During January Year 1, the following transactions occur:
January | 1 | Purchase equipment for $20,600. The company estimates a residual value of $2,600 and a five-year service life. | ||
January | 4 | Pay cash on accounts payable, $10,600. | ||
January | 8 | Purchase additional inventory on account, $93,900. | ||
January | 15 | Receive cash on accounts receivable, $23,100. | ||
January | 19 | Pay cash for salaries, $30,900. | ||
January | 28 | Pay cash for January utilities, $17,600. | ||
January | 30 | Sales for January total $231,000. All of these sales are on account. The cost of the units sold is $120,500. |
Information for adjusting entries:
- Depreciation on the equipment for the month of January is calculated using the straight-line method.
- The company estimates future uncollectible accounts. The company determines $4,100 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 3% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
- Accrued interest revenue on notes receivable for January.
- Unpaid salaries at the end of January are $33,700.
- Accrued income taxes at the end of January are $10,100.
rev: 11_22_2018_QC_CS-148298, 06_13_2019_QC_CS-170054
Exercise 7-21B Part 3
3. Prepare an adjusted trial balance as of January 31, Year 1.
4. Prepare a multiple-step income statement for the period ended January 31, Year 1.
5. Prepare a classified balance sheet as of January 31, Year 1. (Deductible amounts should be indicated with a minus sign.)
6.Record closing entries. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)
7. Analyze how well the company manages its assets:
Requirement 1:
a-1. Calculate the return on assets ratio for the month of January.
a-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?
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More profitable
-
Less profitable
Requirement 2: b-1. Calculate the profit margin for the month of January.
b-2. If the industry average profit margin is 3%, is the company more or less efficient at converting sales to profit than other companies in the same industry?
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More efficient
-
Less efficient
Requirement 3: c-1. Calculate the asset turnover ratio for the month of January.
c-2. If the industry average asset turnover is 0.4 times per month, is the company more or less efficient at producing revenues with its assets than other companies in the same industry?
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More efficient
-
Less efficient
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