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Required information Exercise 9-21 Complete the accounting cycle using long-term liability transactions (LO9-2,9-8) [The following information applies to the questions displayed below) On January 1, 2021, the general ledger of Freedom Fireworks includes the following account balances: Accounts Debit Credit Cash $ 12,800 Accounts Receivable 37,200 Inventory 153,600 Land 83,300 Buildings 136,000 Allowance for Uncollectible Accounts $ 3,400 Accumulated Depreciation 11,200 Accounts Payable 35,300 Common Stock 216,000 Retained Earnings 157,000 Totals $422,900 $422,900 1 4 During January 2021, the following transactions occur. January Borrow $116,000 from Captive Credit Corporation. The installment note bears interest at 6% annually and matures in 5 years. Payments of $2,243 are required at the end of each month for 60 months. January Receive $32,600 from customers on accounts receivable. January Pay cash on accounts payable, $27,808. 10 January Pay cash for salaries, $30,500. 15 January Firework sales for the month total $210,200. Sales include $66,600 for cash and $143,600 on account. 30 The cost of the units sold is $120,500. January Pay the first monthly installment of $2,243 related to the $116,000 borrowed on January 1. Round your 31 interest calculation to the nearest dollar. View transaction list Journal entry worksheet Borrow $116,000 from Captive Credit Corporation. The installment note bears interest at 6% annually and matures in 5 years. Payments of $2,243 are required at the end of each month for 60 months. Record the issuance of the long-term note payable. Note: Enter debits before credits. Dato General Journal Dobit Credit January 01 Record entry Clear entry View general journal Exercise 9-21 Part 2 The following information is available on January 31, 2021. 2. Depreciation on the building for the month of January is calculated using the straight-line method. At the time the building was purchased, the company estimated a service life of 10 years and a residual value of $25,600. b. The company estimates future uncollectible accounts. The company determines $4,600 of accounts receivable on January 31 ore past due, and 50% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 2% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger) c. Unpold salaries at the end of January are $27,700 d. Accrued income taxes at the end of January are $9,600 e. $20,612 of the long-term note payable balance will be paid over the next year. 2. Record the adjusting entries on January 31 for the above transactions. (If no entry is required for a particular transaction/event. select "No Journal Entry Required" in the first account field.) Vlow transaction that Journal entry worksheet 1 2 3 4 5 3. Prepare an adjusted trial balance as of January 31, 2021. Freedom Fireworks Adjusted Trial Balance January 31, 2021 Accounts Debit Credit Exercise 9-21 Part 4 4. Prepare a multiple-step income statement for the period ended January 31, 2021. Freedom Fireworks Multiple-Step Income Statement For the month ended January 31, 2021 Gross Profit Expenses: Total Operating Expenses 5. Prepare a classified balance sheet as of January 31, 2021. (Hint: The carrying value of notes payable on January 31, 2021 is $114,337 $20,612 is reported as notes payable in the current liabilities section and $93,725 is reported as notes payable in the long-term liabilities section ($20,612 + $93.725 = $114,337). (Amounts to be deducted should be indicated with a minus sign.) Freedom Fireworks Classified Balance Sheet January 31, 2021 Assets Liabilities Total Current Liabilities Total Liabilities Stockholder's Equity (5.172) Total Current Assets Total Stockholders' Equity Total Liabilities and Stockholders' Equity Total Assets Exercise 9-21 Part 7 7. Analyze the following for Freedom Fireworks: Requirement 1: a-1. Calculate the debt to equity ratio. Debt to Equity Ratio Choose Numerator Choose Denominator = Debt to Equity Ratio Debt to Equity Ratio 11 11 a-2. If the average debt to equity ratio for the industry is 1, is Freedom Fireworks more or less leveraged than other companies in the same industry? Less leveraged More leveraged Requirement 2: b-1. Calculate the times interest earned ratio Times Interest Earned Ratio Choose Denominator Choose Numerator Times Interest Eamed Ratio Times Interest Earned Ratio - - b-1. If the average times interest earned ratio for the industry is 20 times, is the company more or less able to meet interest payments than other companies in the same industry? More able to meet interest Less able to meet interest Requirement 3: c. Based on the ratios calculated in (a) and (b), would Freedom Fireworks be more likely to receive a higher or lower interest rate than the average borrowing rate in the industry? Lower interest rate Higher interest rate