On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances Accounts Debit Credit Cash $ 25,100 Accounts Receivable 46,200 Allowance for Uncollectible Accounts $ 4,200 Inventory 20,000 Land 46,000 Equipment 15,000 Accumulated Depreciation 1,500 Accounts Payable 28,500 Notes Payable (6 , due April 1, 2019) 50,000 Common Stock 35,000 Retained Earnings 33,100 Totals $152,300 $152,300 During January 2018, the following transactions occur January 2 Sold gift cards totaling $8,000 The cards are redeemable for merchandise within one year of the purchase date January 6 Purchase additional inventory on account, $147,000 January 15 Firework sales for the first half of the month total $135,000 All of these sales are on account The cost of the units sold is $73,800 January 23 Receive $125,400 from customers on accounts receivable January 25 Pay $90,000 to inventory suppliers on accounts payable January 28 Write off accounts receivable as uncollectible, $4,800 January 30 Firework sales for the second half of the month total $143,000 Sales include $11,000 for cash and $132,000 on account The cost of the units sold is $79,500 January 31 Pay cash for monthly salaries, $52,000 Required 1 Record each of the transactions listed above 2 Record adjusting entries on January 31 a Depreciation on the equipment for the month of January is calculated using the straight line method At the time the equipment was purchased, the company estimated a residual value of $3,000 and a two year service life b At the end of January, $11,000 of accounts receivable are past due, and the company estimates that 30 of these accounts will not be collected Of the remaining accounts receivable, the company estimates that 5 will not be collected c Accrued interest expense on notes payable for January d Accrued income taxes at the end of January are $13,000 e By the end of January, $3,000 of the gift cards sold on January 2 have been redeemed 3 Prepare an adjusted trial balance as of January 31, 2018, after updating beginning balances (above) for transactions during January ( Requirement 1) and adjusting entries at the end of January ( Requirement 2) 4 Prepare a multiple step income statement for the period ended January 31, 2018 5 Prepare a classified balance sheet as of January 31, 2018 6 Record closing entries 7 Analyze the following for ACME Fireworks a Calculate the current ratio at the end of January If the average current ratio for the industry is 1 8, is ACME Fireworks more or less liquid than the industry average b Calculate the acid test ratio at the end of January If the average acid test ratio for the industry is 1 5, is ACME Fireworks more or less likely to have difficulty paying its currently maturing debts (compared to the industry average) c Assume the notes payable were due on April 1, 2018, rather than April 1, 2019 Calculate the revised current ratio at the end of January, and indicate whether the revised ratio would increase, decrease, or remain unchanged compared to your answer in (a)

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 16, 2024

On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances: Accounts Debit Credit Cash $ 25,100 Accounts Receivable 46,200 Allowance

On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances:

Accounts	Debit	Credit
Cash	$ 25,100
Accounts Receivable	46,200
Allowance for Uncollectible Accounts		$ 4,200
Inventory	20,000
Land	46,000
Equipment	15,000
Accumulated Depreciation		1,500
Accounts Payable		28,500
Notes Payable (6%, due April 1, 2019)		50,000
Common Stock		35,000
Retained Earnings		33,100
Totals	$152,300	$152,300

During January 2018, the following transactions occur:

January 2	Sold gift cards totaling $8,000. The cards are redeemable for merchandise within one year of the purchase date.
January 6	Purchase additional inventory on account, $147,000.
January 15	Firework sales for the first half of the month total $135,000. All of these sales are on account. The cost of the units sold is $73,800.
January 23	Receive $125,400 from customers on accounts receivable.
January 25	Pay $90,000 to inventory suppliers on accounts payable.
January 28	Write off accounts receivable as uncollectible, $4,800.
January 30	Firework sales for the second half of the month total $143,000. Sales include $11,000 for cash and $132,000 on account. The cost of the units sold is $79,500.
January 31	Pay cash for monthly salaries, $52,000.

Required:

Record each of the transactions listed above.

Record adjusting entries on January 31.

a.	Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $3,000 and a two-year service life.
b.	At the end of January, $11,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 5% will not be collected.
c.	Accrued interest expense on notes payable for January.
d.	Accrued income taxes at the end of January are $13,000.
e.	By the end of January, $3,000 of the gift cards sold on January 2 have been redeemed.

Prepare an adjusted trial balance as of January 31, 2018, after updating beginning balances (above) for transactions during January (Requirement1) and adjusting entries at the end of January (Requirement 2).

Prepare a multiple-step income statement for the period ended January 31, 2018.

Prepare a classified balance sheet as of January 31, 2018.

Record closing entries.

Analyze the following for ACME Fireworks:

a.	Calculate the current ratio at the end of January. If the average current ratio for the industry is 1.8, is ACME Fireworks more or less liquid than the industry average?
b.	Calculate the acid-test ratio at the end of January. If the average acid-test ratio for the industry is 1.5, is ACME Fireworks more or less likely to have difficulty paying its currently maturing debts (compared to the industry average)?
c.	Assume the notes payable were due on April 1, 2018, rather than April 1, 2019. Calculate the revised current ratio at the end of January, and indicate whether the revised ratio would increase, decrease, or remain unchanged compared to your answer in (a).