Financial Ratios 

Current Ratio = Current Assets / Current Liabilities 

Debt-to-assets ratio = Total Liabilities / Total Assets  

Asset turnover ratio = Net Sales Revenue / Average Total Assets  

Net profit margin ratio = Net Income / Net Sales Revenue 

Gross profit percentage = (Net Sales Revenue - Cost of Goods Sold) / Net Sales Revenue Inventory turnover ratio = Cost of Goods Sold / Average Inventory 

Days to Sell = 365 / Inventory Turnover Ratio 

Earnings Per Share Ratio = Net Income / Avg Number of Shares Outstanding Return on Equity Ratio = Net Income / Average Shareholders' Equity Price Earnings Ratio = Current Share Price / Earnings per Share 

 

 

 

Problem 1:

Prior to the transactions listed below in the left column, Mack Inc. reported a debt-to-assets ratio  of 0.50, asset turnover of 1.20, net profit margin of 0.30, and earnings per share of $1.00.  

Required (to be completed in the chart below): 

Complete the lettered cells in the following table by indicating whether each transaction causes  the selected ratios for Blue Inc. to increase (+), decrease (-), or not change (NC). Notice you  do not need to show the updated ratios. Consider each of the five transactions independently  (i.e., on their own).  

Transaction	Debt-to  Assets	Asset  Turnover	Net Profit  Margin	Earnings  Per Share
Customers used   previously issued gift  certificates for food and  drinks valued at $500.	(a)	(b)
Accrued $650 for this  month's utility bill, which  will be paid next month.	(c)	(d)	(e)
Recorded $2,400 of   depreciation this month.	(f)			(g)
Purchased and received,  but didn't yet pay for,  equipment costing $850.	(h)
Received $40,000 cash  from shareholders for  additional common shares of Mack Inc.		(i)		(j)

 

Problem 2:

Win Company's annual accounting year ends on September 30. It is September 30, 2022, and all of  the 2022 entries except the following adjusting journal entries have been made: 

Required:  

Prepare the adjusting journal entries that are required on September 30, 2022. [5 marks] 

a) Cash of $9,600 was collected on July 1, 2022, for services to be rendered evenly over the  next year, beginning on July 1. Deferred Service Revenue was credited when the cash  was received. Some of it has now been earned but not yet recorded. 

Account Names	Debit	Credit

 

b) On May 1, 2022, Swift paid a six-month premium for property insurance in the amount  of $3,600 for insurance coverage starting on that date. Cash was credited and Prepaid  Insurance was debited for this amount. 

Account Names	Debit	Credit

 

c) On September 1, 2022, Swift collected two months' maintenance revenue of $7,000. At  that date, Swift debited Cash and credited Deferred Maintenance Revenue for $7,000.  One half of it has now been earned but not yet recorded. 

Account Names	Debit	Credit

 

d) On August 31, 2022, the company completed the work on a contract for an out-of province company for $5,500 payable by the customer within 30 days. No cash has been  collected and no journal entry has been made for this transaction. 

Account Names	Debit	Credit

 

e) Depreciation must be recognized on a service truck that was purchased on March 1, 2022. Annual depreciation is calculated to be $8,400. 

Account Names	Debit	Credit

 

Problem 3: 

Copper Inc. uses a perpetual inventory system and has the following data available for inventory, purchases, and sales for a recent year: 

Activity	Units	Purchase Price (per unit)	Sales Price (per unit)
Beginning inventory	150	$3.50
Purchase 1, Jan. 15	675	4.00
Sale 1	(395)		$6.80
Sale 2	(325)		7.00
Purchase 2, Mar. 20	690	4.10
Sale 3	(370)		7.00
Sale 4	(200)		7.50
Purchase 3, Sept. 22	250	4.30
Sale 5	(285)		7.90

 

Required: 

1. Compute the cost of goods available for sale before taking into account any sales. [1  mark] 

2. Compute the cost of ending inventory and the cost of goods sold using the specific  identification method. Assume the ending inventory is made up of 40 units from  beginning inventory, 30 units from purchase 1, 80 units from purchase 2, and 40 units  from purchase 3. [2 marks] 

3. Now assume that an inventory count took place at the end of the year and indicated that  190 units are left on hand. Compute the cost of ending inventory and the cost of goods  sold using the FIFO inventory costing method. [2 marks] 

4. If the company uses FIFO and the Net Realizable Value of ending inventory is $3.50 per  unit, is a write-down of inventory necessary? Why or why not? [1 mark] 

5. If a write-down is necessary, calculate how much this write-down would be for and then  record the necessary journal entry. [3 marks] 

6. What is the conceptual justification for valuing inventory at the lower of cost and net  realizable value? [1 mark] 

 

 

Problem 4:  

University Books (UB) is a retail store that purchases textbooks from publishers, and then sells these textbooks to students on campus for use in their registered classes. 

Required: 

1. Prepare journal entries for UB to record the business transactions described below  that took place in September 2022. Ignore income taxes. Round to the nearest whole  dollar. [10 marks] 

 On September 1^st, UB placed an order with McGraw-Hill to purchase 100  accounting textbooks at a per unit cost of $140 each, under terms 2/10, n/30. The  textbooks were received the same day.  

Account Names	Debit	Credit

 

 On September 4^th, UB returned 10 of the accounting textbooks to the publisher as they did not come with the Connect access code attached to the book.  

Account Names	Debit	Credit

 

 On September 5^th, UB complained to McGraw Hill about the condition of the  accounting textbooks, as some of them were damaged slightly during shipping.  McGraw Hill granted UB an allowance of $500.  

Account Names	Debit	Credit

 

 On September 6^th, UB paid McGraw-Hill for the amount owing on the  accounting textbooks.  

Account Names	Debit	Credit

 

 On September 7^th, UB sold 80 of the accounting textbooks for $160 each, all  were paid with either cash or credit card. 

Account Names	Debit	Credit

 

 On September 8^th, 20 accounting textbooks were returned by students to UB, as  the students had decided after the first week of classes, accounting was not for  them, and luckily, they hadn't taken the textbook out of its packaging yet. UB  reimbursed the students with cash as these students had paid cash when they  originally bought the textbooks.  

Account Names	Debit	Credit

 

 On September 15^th, UB paid employees $1,000, $400 of which related to work  done in August and $600 for wages up to September 15^th. 

Account Names	Debit	Credit

 

 On September 30^th, UB received their monthly utility bill for $350 and will pay  this in October. 

Account Names	Debit	Credit

 

2. Prepare a multistep income statement for the month of September 2022 that would be  used for internal reporting purposes given the transactions listed above. The company's tax rate is 30%. [9 marks] 

	$

 

3. Calculate UB's gross profit percentage and compare it to UB's online competitor who has a gross profit percentage of 30%. Who is better off? [1 mark] 

 

 

 

 

 

 

Please, Please, provide all the answers accurately with step-by-step explanations.

 

Thank you!