On January 1, 2018, the general ledger of TNT Fireworks includes the following account balances: Credit Debit $ 59,000 25,600 $ 2,500 Accounts Cash Accounts Receivable Allowance for Uncollectible Accounts Inventory Notes Receivable (5%, due in 2 years) Land Accounts Payable Common Stock Retained Earnings Totals 36,600 15,600 158,000 15,100 223,000 54,200 $ 294,800 $ 294,800 During January 2018, the following transactions occur: January 1 Purchase equipment for $19,800. The company estimates a residual value of $1,800 and a six-year service life. its payable, $9,800. January 8 Purchase additional inventory on account, $85,900. January 15 Receive cash on accounts receivable, $22,300 January 19 Pay cash for salaries, $30,100. January 28 Pay cash for January utilities, $16,800. January 30 Firework sales for January total $223,000. All of these sales are on account. The cost of the units sold is $116,500. The following information is available on January 31, 2018. 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, $3,300 of accounts receivable are past due, and the company estimates that 50% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 2% will not be collected. The note receivable of $15,600 is considered fully collectible and therefore is not included in the estimate of uncollectible accounts. c. Accrued interest revenue on notes receivable for January d. Unpaid salaries at the end of January are $32,900. e. Accrued income taxes at the end of January are $9,300. Requirement General Journal General Ledger Trial Balance Income Statement Balance Sheet Analysis 1. Record each of the transactions listed above in the 'General Journal' tab (these are shown as items 1 - 8) assuming a FIFO perpetual inventory system. The transaction on January 30 requires two entries: one to record sales revenue and one to record cost of goods sold. Review the 'General Ledger' and the 'Trial Balance' tabs to see the effect of the transactions on the account balances. 2. Record adjusting entries on January 31. in the 'General Journal' tab (these are shown as items 9-13). 3. Review the adjusted 'Trial Balance' as of January 31, 2018, in the 'Trial Balance' tab. 4. Prepare a multiple-step income statement for the period ended January 31, 2018, in the 'Income Statement' tab. 5. Prepare a classified balance sheet as of January 31, 2018, in the 'Balance Sheet' tab. 6. Record the closing entries in the 'General Journal' tab (these are shown as items 14-16). 7. Using the information from the requirements above, complete the 'Analysis' tab. Analyze how well TNT Fireworks manages its assets: (a) Calculate the return on assets ratio for the month of January. 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? The return on assets ratio is: The company is more profitable. (True or False) (b) Calculate the profit margin for the month of January. If the industry average profit margin is 5%, is the company more or less efficient at converting sales to profit than other companies in the same industry? The profit margin is: % The company is more efficient at converting sales to profit. (True or False) ! (c) Calculate the asset turnover ratio for the month of January. 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? The asset turnover ratio is: times The company is more efficient at producing revenues with its assets. (True or False)
